The Real Deal New York

Daffy’s sues Cohen for $5M in lease dispute

Company head Charles Cohen calls retailer "low-class"

March 16, 2011 04:19PM
By Adam Pincus

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Charles Cohen and Daffy’s

Discount clothing retailer Daffy’s is striking back at landlord Cohen Brothers Realty, owner of 135 East 57th Street, five months after the chain store beat back an effort by the building owner to throw it out of its basement retail space where it is paying a below-market rent.

Secaucus, N.J.-based Daffy’s accused Cohen Brothers of poor upkeep of the building resulting in water damaging the retailer’s mostly-underground 54,000 square feet of space, and is seeking more than $5 million, a suit filed in New York State Supreme Court March 10 shows. In addition, the suit claims Daffy’s has been overcharged for air conditioning, electricity and other expenses.

The location is the chain retailer’s second most profitable among its chain of 17 northeast metro-area stores, earning $3.3 million before taxes, only $100,000 less than its top location in Herald Square at 1311 Broadway. But Charles Cohen [http://therealdeal.com/newyork/articles/the-closing-charles-cohen], president of Cohen Brothers, thought poorly of his tenant, calling it a “low-class” establishment with “a table with a million goods on them and people kicking you,” court papers reveal.

Neither Cohen Brothers nor Daffy’s responded to requests for comment on the most recent lawsuit.

Since 1994, the apparel company has occupied a small portion of the ground floor, as well as approximately 25,000 square feet each of basement and sub-basement space in the office tower, which Cohen Brothers bought in 1997, the legal papers say. Daffy’s now pays $2 million per year, or $40 per square foot, court records show.

That rate is far below the $85 asking rent for the space last year for what was described as a “perfect retail box,” leading a Cohen Brothers broker to offer Daffy’s $3 million to $4 million for a buyout (although the year of the offer was not specified), which was rejected.

Then, in what appeared to be a stroke of luck for Cohen Brothers, the Jan. 31, 2010 deadline for the first of two renewal options came and went without a word from Daffy’s.

But Daffy’s says in testimony in fact it wanted the space, and through human error, forgot to renew it. In an effort to cover its oversight, Daffy’s sent the renewal notice a few days later, but backdated it to January.

Far from wanting to close stores, the court papers say Daffy’s is planning to open eight new stores by 2014, most of them in the New York-metro area. The retailer this month tapped retail veteran Caryn Lerner as new CEO to lead the expansion.

Cohen Brothers was furious with the late renewal effort, and sued in February 2010 [http://therealdeal.com/newyork/articles/daffys-faces-eviction-in-midtown-at-cohen-brothers-owned-spot-at-135-east-57th-street], claiming Daffy’s failed to renew the lease on time and committed fraud because of the bogus date on the letter.

That case went to trial last July. Ultimately State Supreme Court Justice James Yates was sympathetic to Daffy’s excuse that its controller was suffering from ongoing medical conditions, including diabetes and arthritis, court records show. Yates ruled that the tardy lease renewal should be allowed, and the lease extension should be accepted.

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