Recently, in Valentino U.S.A., Inc. v. 693 Fifth Owner LLC, Justice Andrew Borrok of the New York County Commercial Division dismissed a complaint brought by Valentino U.S.A., Inc. (“Valentino” or “Tenant”), which sought to rescind or terminate the commercial lease for its Manhattan luxury fashion store and to avoid its rent obligation.[1] 

Like many landlord-tenant disputes currently pending or recently decided in light of the COVID-19 Pandemic, this case involved the common law doctrines of frustration of purpose and impossibility.  The Commercial Division held that neither doctrine excused Valentino’s rent obligation because the parties’ lease allocated to Valentino the risk that Valentino would not be able to operate its business. 

Background

In its complaint, Valentino alleged that it had been forced to close its Fifth Avenue store on March 17, 2020 due to the COVID-19 Pandemic and Governor Cuomo’s Executive Order 202.8, which temporarily shuttered all non-essential businesses in New York.[2]  The complaint further alleged that, even after the relaxation of some of the limitations imposed by Executive Order 202.8, Valentino continued to be unable to offer in-boutique retail sales, or associated services such as fittings, “which are vital to its business and central to the Lease’s purpose.”[3]  In addition, Valentino claimed that once the Pandemic wanes, “the social and economic landscapes have been radically altered in a way that has drastically, if not irreparably, hindered Valentino’s ability to conduct high-end retail business at the Premises.”[4]  Therefore, according to the complaint, Valentino was entitled either to terminate or rescind its lease for the store or to a rent abatement under the doctrines of frustration of purpose and impossibility.[5] 

The complaint also sought rescission of the lease based on failure of consideration.  According to the complaint, the lease lacked consideration because the COVID-19 Pandemic, related Executive Orders, and governmental restrictions had completely deprived Valentino of the beneficial use and occupancy of the premises.[6]

The complaint also asserted a claim for constructive eviction.  Valentino alleged that the defendant landlord, 693 Fifth Owner LLC (the “Landlord”) had constructively evicted Valentino by failing “to take reasonable and necessary precautions and/or measures in light of the COVID-19 pandemic, to ensure that [Valentino] could safely occupy the premises and/or operate, as originally contemplated by the Lease.”[7] 

In response, the Landlord moved to dismiss the complaint under CPLR § 3211(a)(1), based on a defense founded on documentary evidence (i.e., the parties’ lease), and for failure to state a claim under CPLR § 3211(a)(7).

Justice Borrok’s Opinion

In a decision by Justice Borrok, the Commercial Division granted the Landlord’s motion to dismiss.[8] 

The court dismissed the Tenant’s claims which sought rescission or termination and rate abatement based on a provision in the parties’ lease that allocated to Valentino the risk that Valentino would not be able to operate its business.  Although this provision did not mention COVID-19 or pandemics specifically, it broadly specified that Valentino’s obligation to pay rent would not be excused by “‘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.’”[9]  Accordingly, as the Commercial Division concluded, Valentino would not be “forgiven from its performance, including its obligation to pay rent[,] by virtue of a state law.”[10] 

Turning to the constructive eviction claim, Justice Borrok held that the claim failed because Valentino had “fail[ed] to plead that it moved out of the subject premises or that the landlord substantially interfered with its use and possession (i.e., as opposed to the temporary interference by a state law) . . . .”[11]  To the contrary, the court observed, the record indicated that the Valentino store had continued to operate as of July 22, 2020.[12]  In addition, the court held that, “Valentino’s conclusory and general allegation that the landlord failed to maintain the premises, even taken as true . . . , lacks causation.”[13]

Conclusion

This Valentino decision continues the general trend—about which we have written previously—of New York courts’ ruling in favor of landlords in COVID-19-related disputes.[14]  As result of this trend, commercial tenants are likely to have difficulty obtaining relief from their lease obligations, absent lease obligations that are more favorable to tenants or other comparable circumstances.  

In particular, this Valentino decision is consistent with another recent Commercial Division decision, Victoria’s Secret Stores, LLC v. Herald Square Owner LLC.[15]  There, the court rejected an attempt by Victoria’s Secret to avoid its rent obligation in connection with a store located in Manhattan’s Herald Square.  In that case, the court similarly held that a lease provision allocating risk to Victoria’s Secret precluded its claims. 

Taken together, these Commercial Division decisions reaffirm the notion that the terms of a lease are paramount in determining whether tenants will be able to side-step their obligations in these sorts of COVID-19-related real estate disputes.