A person walks past Les Ailes de la Mode lettering, when leaving a shopping centre in Montreal.Christopher Katsarov/The Canadian Press
A legal fight over the future of a former Hudson’s Bay store in an upscale Toronto mall has been resolved, with mall owner Oxford Properties successfully fighting a proposal to open a discount store in the empty space.
In a decision filed with the Ontario Superior Court of Justice on Monday, judge Jessica Kimmel wrote that a plan to open a Les Ailes de la Mode department store lacked “commercial soundness.”
The Globe and Mail first reported on the legal fight last October, which pitted two of the country’s largest real estate owners against each other. RioCan Real Estate Investment Trust, which favoured the Les Ailes plan, held the lease to the Yorkdale store through a joint venture with Hudson’s Bay. That joint venture covering 12 properties, including Yorkdale, which was placed into receivership last year after the collapse of the 355-year-old retailer.
Had the plan been approved, the receiver now overseeing the joint venture, FTI Consulting Inc., would have entered into a sublease for the space with Les Ailes, which is owned by Canadian retailer Isaac Benitah as part of his Fairweather chain. RioCan has a $75-million mortgage with Royal Bank of Canada backed by its lease on the former Bay outlet. The company pays roughly $3.5-million a year in interest on the debt.
But Oxford did not consent to the lease transfer, and argued Les Ailes would be ill-suited as a tenant at Yorkdale, which houses stores for high-end brands such as Holt Renfrew, Prada and Tiffany & Co.
“The introduction of retailers inconsistent with this strategy would risk diluting Yorkdale’s brand, diminishing its attractiveness to luxury tenants, and reducing customer traffic across the shopping centre,” Justice Kimmel wrote in the decision filed on Monday, summarizing Oxford’s arguments.
The mall landlord objected to Les Ailes not because it is not a luxury store, Oxford vice-president Nadia Corrado wrote in an affidavit filed with the court in November, but because “Fairweather is not a first-class retail operator,” and the company doubted it would meet its lease obligations. The failure of the store would have a detrimental effect on the mall because of the “size, visibility and overall presence” of the former Bay store there, she wrote.
Indeed, the failure of Hudson’s Bay itself has had an impact on the mall. Court documents in the case revealed that the store had been allowed to deteriorate, and Oxford estimated it would need $9.3-million in immediate repairs and $16.9-million in total investments over the next three years – including to replace the roof, to fix “significant cracking” on the exterior wall, and to replace boilers and other equipment dating back to the 1980s.
Mr. Benitah, who belongs to a prominent Canadian retailing family, is chief executive officer of Toronto-based INC Group Inc., which also runs women’s clothing chain Fairweather, menswear retailers International Clothiers and Stockhomme, and discounter Designer Depot. Mr. Benitah’s Fairweather Group acquired Les Ailes in 2005.
Those retailers have filed for creditor protection in the past and scaled back their store presence. The Benitah family’s home-décor chains Bowring and Bombay filed for bankruptcy in 2018 and later shut down.
In addition to the Yorkdale deal, Mr. Benitah has bought other assets since Hudson’s Bay filed for creditor protection last year: in August, he agreed to buy the intellectual property of discount-retailer Zellers, which was owned by the Bay, and has opened a Zellers store in Edmonton.
The retailer’s plans for Les Ailes at Yorkdale had been to offer a range of products, including clothing, footwear, housewares, accessories and confectionary, under “mid- to high-end” brands. It had secured commitments with suppliers including Reebok, Steve Madden, Laura Ashley and Perry Ellis, many of which formerly supplied the Bay. Les Ailes also would have carried its own private-label products.
Subletting the Yorkdale space to Mr. Benitah would have provided RioCan and the receiver with more time to strike a deal with a new tenant for the space that would have preserved the value of the lease held by the joint venture. If the store remains empty, the lease could be terminated in August of this year once a certain time period of “non-operation” is reached.
But the judge wrote that “there was an unfairness in the working out of the process of looking for a subtenant for this prime retail space in the top shopping mall in Canada without involving Oxford,” the mall’s landlord. Oxford has also asked for information about Fairweather’s financial health and about its plans for how it would operate a store in the space. This was withheld, which the judge wrote was also unfair.
The judge ruled that Oxford did not unreasonably withhold its consent to the deal, and dismissed the motion to approve the sublease.