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Law360 (April 1, 2020, 6:15 PM EDT ) The company servicing a loan for a suburban Pittsburgh strip mall agreed to delay a "cash sweep" action until at least mid-May after the owners of North Hills Village complained that the seizure of tenants' rents to repay the loan could shut the center down amid the coronavirus pandemic.
LNR Partners told a Pennsylvania federal court Tuesday that it reached a deal with North Hills Village LLC for a 40-day delay in the cash sweep, where tenants' rent payments would go entirely to the loan servicer instead of letting the landlord keep what's left over after paying the bills.
"North Hills Village LLC, and defendants LNR Partners LLC and Wells Fargo Bank NA ... hereby notify the court that they have reached a standstill agreement to not implement a cash sweep for a period of 40 days from March 31, 2020," the notice to the court said.
In response, the shopping center withdrew a motion for a temporary restraining order that it filed as part of a lawsuit Monday. Even with the restraining order off the table, North Hills Village was still seeking an injunction barring the cash sweep after the 40 days were up, and a declaratory judgment that its use was improper.
North Hills Village, a 600,000-square-foot strip mall in the busy suburb of Ross Township, Pennsylvania, took out a loan in 2016 that Wells Fargo and LNR agreed to service. Under a cash management agreement, rents went into a Wells Fargo account that covered loan payments, taxes, fees and other expenses, and North Hills Village got to keep what was left over for operating and maintaining the shopping center.
The loan contained provisions that said if one of the major tenants moved out without a replacement, the servicers could implement a "cash sweep" that took all the rent payments to service the loan and left nothing for North Hills Village, the lawsuit said.
LNR sought to use those provisions starting Wednesday, citing the pending expiration of Burlington Coat Factory's lease, but North Hills Village said it got Burlington to agree to a five-year renewal that LNR had approved March 20.
North Hills Village said losing its share of the rents could cause the company to fold and force the shopping center to shutter as it struggles with state orders intended to slow the spread of COVID-19, which closed all but a few tenants that were deemed "essential businesses."
"Defendants' threatened cash sweep violates the loan and related agreements between the parties and a temporary restraining order is necessary in order to prevent an unwarranted and punitive cash sweep," Mark Zheng of Vorys Sater Seymour and Pease LLP said in the mall's now-withdrawn motion for a restraining order. "Withholding of funds by defendants in the midst of a global pandemic and financial crisis … will jeopardize the ability of North Hills Village to operate as a going concern."
Pennsylvania Gov. Tom Wolf extended his coronavirus-related business closure order "indefinitely" on Tuesday and expanded his stay-at-home order from the hardest-hit counties to a statewide order Wednesday. A few of North Hills Village's tenants, including Target, PetCo and a Kuhn's grocery store, were among the businesses exempted from the closures.
LNR had simultaneously approved Burlington's lease renewal and used the lease expiration to justify the cash sweep, but the mall had fixed any conditions that triggered the sweep by getting the new lease and keeping that space filled, the suit said. It could not come up with another tenant or renegotiate the lease with Burlington, the mall said.
North Hills had sought to reassure LNR that it could keep up with its loan payments by seeking to withdraw $1.5 million from its "rollover reserve" Wells Fargo account and using the money as additional security on the loan, but LNR and Wells Fargo refused to release the money, the lawsuit said.
Attorneys for North Hills Village and LNR did not immediately respond to requests for comment Wednesday. A representative of Wells Fargo declined to comment.
North Hills Village is represented by Mark C. Zheng, Daren S. Garcia, Joseph R. Miller and John M. Kuhl of Vorys Sater Seymour and Pease LLP.
LNR Partners is represented by Joel M. Walker and Gerald J. Schirato Jr. of Duane Morris LLP.
Counsel information for Wells Fargo was not available as of Wednesday.
The case is North Hills Village LLC v. LNR Partners LLC et al., case number 2:20-cv-00431, in the U.S. District Court for the Western District of Pennsylvania.
--Editing by Haylee Pearl.
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