Pandemic Meets Allocation of Risk on Fifth Avenue: Was Luxury Retail Tenant Constructively Evicted?
Commercial tenants routinely assert both frustrations of purpose and impossibility of performance as defenses to claims for non-payment of rent accruing during the pandemic. And, as a recent case illustrates, the defense of actual or constructive eviction has joined that panoply, with a similar result.
Valentino U.S.A., Inc.'s entered into a lease with Thor 693 LLC for lower level and ground/second/third-floor space at 693 Fifth Avenue for the display and sale of luxury womenswear, menswear, goods, and accessories.
Valentino sought to terminate the obligations under the lease and related guaranty or an abatement of rent, claiming pandemic-related frustration of purpose, the impossibility of performance, failure of consideration, and constructive eviction—due to the New York State and New York City-mandated restrictions and closures. Thor moved to dismiss the complaint.
Section 21.11 of the lease expressly allocated the risk that Valentino would not be able to operate the business and that Valentino would not be forgiven from such performance, including its obligation to pay rent by reason of state law. The fact that the COVID 19 pandemic was not specifically enumerated by the parties did not change the result because the lease was drafted broadly and encompassed the present situation by providing that nothing contained in Section 21.11 of the lease, including "restrictive governmental laws or regulations," certain cataclysmic events, "or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed in performing work or doing acts required" shall excuse the payment of rent.
To be an eviction, constructive or actual, there must be a wrongful act by the landlord which deprives the tenant of the beneficial enjoyment or actual possession of the demised premises. Valentino's failure to plead that it moved out of the premises or that Thor substantially interfered with its use and possession (i.e., as opposed to the temporary interference by state law) doomed its claim for constructive eviction. On the record before the Court, it appeared that the store continued to operate as of July 22, 2020. A sign was placed on the store indicating that it was open for curbside retail and by appointment. Valentino's conclusory and general allegation that Thor failed to maintain the premises, even taken as true, lacked causation. Finally, to the extent that Valentino indicated that, after filing suit, they subsequently made the decision to move out and vacated the premises did not change the result. No wrongful act of Thor was alleged to have caused the necessity of that decision. Thus, Valentino's complaint was dismissed.
Related Professionals
Media Contact
Public Relations Contact
Kate Lenders
Senior Marketing Manager
klenders@sgrlaw.com
312-360-6478
