Court Rejects Tenants’ Claims That COVID Closure Orders and Limited-Use Policies Negate the Obligation to Pay Rent and/or Use-and-Occupancy
Rosenberg & Estis, P.C. has secured an important victory against The Gap and Old Navy in the Appellate Division, First Department, requiring the tenants to pay monthly use and occupancy directly to the landlord during an ongoing dispute over rent payments. The decision modifies an earlier order from the Supreme Court of New York in New York County that directed the tenants to deposit the funds with the Court.
This may be the first Appellate Division decision involving a pandemic-related rent dispute. The Court’s ruling is a significant victory for commercial landlords, as it undermines tenant claims that COVID closure orders and limited-use policies mandated under pandemic executive orders allow tenants either to defer, or altogether avoid, the obligation to pay rent, or use-and-occupancy payments.
Warren A. Estis, Norman Flitt and Alexander Lycoyannis, members, and Alexander M. Estis, associate, of Rosenberg & Estis represented 44-45 Broadway Leasing Co., LLC before the Appellate Division. The attorneys previously represented the owner of these premiere Times Square locations before Supreme Court Justice Debra A. James.
“This is a huge victory for commercial landlords in New York, as many other tenants have raised similar arguments in other pending cases, seeking to avoid interim use-and-occupancy orders,” Warren Estis said. “However, as this decision confirms, any continued use and occupancy of the premises triggers the tenants’ obligation to compensate the landlord directly.”
The dispute dates to May 2020, when The Gap and Old Navy stopped paying required rent for their two flagship retail spaces in Times Square. The tenants’ rent default prompted the landlord to serve default notices on both tenants. In response, the tenants commenced the action, arguing, among other things, that a modification of the leases was required as a result of the pandemic and related closure orders. At the same time, the tenants sought an injunction to enjoin the landlord from terminating the leases pending the outcome of the case.
In response to the tenants’ motion for an injunction, Rosenberg & Estis cross-moved for an order requiring the tenant to pay rent and/or use and occupancy directly to the landlord while the action was pending, regardless of whether the Court granted the tenants an injunction.
The court granted the injunction requested by the tenant but required the immediate payment of $2,953,733 in rent for July 2020, and also required tenants to post a bond for $5,842,531 toward rent arears for May and June of 2020. The court further directed The Gap and Old Navy to continue paying rent discounted by 10 percent.
The requirement that the tenant post a surety bond of $5,842,531 and the subsequent Appellate Division modification ensuring direct use-and-occupancy payments to the landlord, represents a substantial victory for commercial landlords.