Starbucks Being Sued for Late Rent and Closing Stores Without Notice

Starbucks Corp. (Seattle), in the midst of closing more than 600 U.S. locations by early 2009, has been sued by a handful of property owners and developers. According to The Wall Street Journal, the suits allege that Starbucks owes them money for rent or other expenses. The suits involve both properties where the company has shut down a store and those where it decided not to open a store after entering a lease. At least seven of these lawsuits have been filed.

Some landlords contend Starbucks is paying rent late or closing stores without notice as a way to get out of their leases. They say they aren't eager to let Starbucks out of leases because of the high rent the retailer has agreed to. The deteriorating commercial real estate market means replacement tenants are unlikely to pay nearly as much rent.

“They talked about us being partners,” John Caldwell, a real-estate developer who owns and custom-built three properties for Starbucks in Arkansas and Tennessee, told The Journal. “Now it seems they've forgotten their mantra.”

Starbucks says that, in general, it is in compliance with its lease obligations and not aware of locations where it is behind on rent. The company says it isn't necessarily obligated to pay rent for sites it no longer plans to open. In some cases, The Journal reports, Starbucks has contended that the landlord didn't uphold its responsibility or that the lease gives the company the right to terminate it. The company says most leases have some language that allows it to negotiate out of them.

“We're not doing anything out of the norm of any other company that would seek to restructure its real-estate portfolio,” said Michael Malanga, Starbucks's senior vp, U.S. store development. “Our No. 1 objective is to maximize shareholder value.”

Starbuck hasn't disclosed how many leases it has signed for locations it no longer wants to open, but Malanga says it “is not a material number.” He says he is pleased with the results of the lease negotiations so far and that the company is “striving for a win-win resolution.”

The Journal notes that these lease battles represent a turnabout for Starbucks, which has been one of the most sought-after retail tenants of the past decade, spending top dollar for its locations and helping draw other retailers to shopping centers.