Defeats COVID-Related Defenses, Recovers $24 Million in Past-Due and Current Rent, Plus Interest and Attorneys’ Fees
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Rosenberg & Estis, P.C. has successfully obtained summary judgment against The Gap Inc. and Old Navy LLC in an action commenced by The Gap and Old Navy seeking, among other things, to terminate their long-term leases at their flagship stores in the heart of Times Square and avoid payment of millions of dollars of both past-due and current rent to their landlord, 44-45 Broadway Leasing Co., LLC.
The case was pending before Justice Debra A. James in Supreme Court, New York County (Index No. 652549/2020). Judge James rejected all of the tenants’ defenses and dismissed their complaint in its entirety.
Warren A. Estis and Norman Flitt, members, and Alex M. Estis, associate, with Rosenberg & Estis, represented 44-45 Broadway Leasing Co., LLC in the case.
Throughout the case, which was commenced in June 2020, when the tenants filed their summons and complaint and moved contemporaneously for a Yellowstone injunction, the Rosenberg & Estis team has successfully advanced the Landlord’s interests.
First, when the tenants moved for a Yellowstone injunction, Rosenberg & Estis succeeded in conditioning that injunction on the tenants posting a bond in excess of $5.8 million to cover then-existing arrears of rent. The Court also directed that the tenants deposit ongoing use and occupancy, at rates equivalent to 90% of the rental rates reserved under the respective leases, into court each month during the pendency of the case. Rosenberg & Estis appealed that determination and successfully obtained an order from the Appellate Division, First Department that ordered those payments to be paid directly to Landlord. Rosenberg & Estis then prevailed on a motion to release the funds that had previously been deposited for use and occupancy, plus accrued interest, to Landlord.
Landlord also moved for summary judgment to dismiss the tenants’ causes of action, which the tenants asserted in reliance on COVID-19-related defenses, such as impossibility, frustration of purpose, failure of consideration and whether the COVID-19 pandemic qualified as a “casualty” under the Leases. The tenants made these claims in the hopes of avoiding their substantial rent obligations during the pandemic and went so far as to argue that their leases had terminated in March 2020 as a result of the closure orders.
All of the tenants’ claims and defenses were rejected by the Court, resulting in the dismissal of the complaint and an order directing the immediate release to Landlord of the bond of approximately $5.8 million that the tenants had posted previously to secure arrearages, and any other funds deposited by the tenants for use and occupancy. The tenants were also held liable for the Landlord’s attorneys’ fees and the remaining 10% of the rent that had previously been discounted when the Yellowstone motion was issued. As a result, the Landlord was entitled to apply for the release of approximately $24 million remaining on deposit in Court, plus accrued interest.
“It is really gratifying for courts to recognize when commercial tenants are misusing the COVID pandemic to avoid their obligations under long-term leases,” said Warren A. Estis. “This case will stand as an important precedent for commercial landlords and should put to rest similar baseless claims by other commercial tenants based on these COVID defenses.”