There’s no question that these past five to six months have been a troubling time for both landlords and tenants. Each group is struggling to figure out how to work with the other to move forward, hopefully amicably, and to come through this pandemic in a position to regain lost ground. Of course, payment of rent and related charges are at the forefront of this issue. This particular topic has been fodder for a large amount of debate in both legal and business circles, with a number of potential defenses put forward as possibilities for tenants to use. Most of these defenses are more theoretical than not, and generally have yet to be tested in the context in which we all find ourselves. However, there are some cases worth keeping an eye on as the number of lawsuits related to payment of rent (or more specifically, non-payment of rent) grow.
The Gap v. 44-45 Broadway Leasing Co.: In this case, the court required The Gap to put up a bond of almost $6 million to cover the allegedly owed rent. However, the court did reduce the bond amount by 10% of the May and June rent as a nod to the effects of COVID-19. While the judge has not said that The Gap is entitled to abate 10% of rent for those months, it could be a sign that the judge does feel that The Gap will not ultimately have to pay 100% of the rent due under the lease.
Giglio’s State Street Tavern v. Kass Management Services: In a somewhat similar case, Giglio claimed that the government restrictions that resulted in the closure of its restaurant amounted to force majeure. The judge agreed and gave the tenant a 75% reduction in rent from April to June. Without knowing the exact language used in the lease’s force majeure provision, it is hard to say how controlling this decision will be, but there’s clearly some sympathy from at least some judges for tenants dealing with the impact of COVID-19 and its related governmental restrictions.
The Gap v. Crown Acquisitions and Prime Property Fund (Morgan Stanley): The Gap has filed a countersuit in this case arguing that the “purpose of the lease has been completely frustrated” and, as a result, the lease was effectively terminated in March due to the closure caused by COVID-19.
The Gap v. Brookfield: Similar to the above, but involving significantly more locations (and money), The Gap has argued that it does not owe rent to Brookfield because the leases are actually terminated due to the COVID-19 restrictions that made the leases “illegal, impossible, and impracticable.” Moreover, The Gap also requested a refund of March rent due to breach of contract, declaratory relief, and unjust enrichment.
Abercrombie & Fitch v. Simon: Abercrombie has made a claim against Simon for “wrongfully extract[ing] rent payments from ANF retail properties leased from Simon.” They based this argument on the various states declaring lockdowns on nonessential retail. Because the states mandated the closure of the premises, Abercrombie is claiming that all rent is abated for the duration of the government enforced closure. Abercrombie made some rent payments under protest and is asking the court to return those rent payments.
Backal Hospitality Group v. Moinian Group: Backal, using the same argument that Abercrombie used, said that New York’s closure of its store meant that its lease with Moinian was terminated and demanded that the rent collected by Moinian during the closure be paid back. In this case, the judge ruled against Backal, saying that Backal had “unilaterally attempted to terminate the lease in a manner violative” of the lease.
Of course, one case does not make law by itself, and the success or failure of various tactics has yet to be decided. However, at some point, there will be a tipping point of decisions that will likely influence the rulings of other courts. It will be interesting to see which side these decisions come down on and how that will impact negotiations between landlords and tenants for rent relief.