The Real Deal New York

Crown wins suit against Guess over $30M Midtown lease

October 25, 2011 06:17PM
By Leigh Kamping-Carder

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Clockwise from left: Crown Acquisition’s Haim Chera, 720 Lexington Avenue and Guess CEO Paul Marciano
The owner of 720 Lexington Avenue has prevailed against Guess in a lawsuit alleging the
clothing company wrongly backed out of a $30 million commercial lease at the building.

A New York federal judge this past Friday found Guess liable for breaching its contract
with the building’s owner, an entity backed by Haim Chera and his family’s firm, Crown Acquisitions. Guess had claimed that the parties verbally agreed to drop the
lease, and that a commission-sharing agreement between brokers who set up the deal
rendered the lease invalid.

The dispute dates back to mid-2008, when Guess signed a 15-year, $30 million lease for
the entire four-story building on the corner of Lexington and East 58th Street, contingent
on the retailer getting access to the property by Aug. 1, 2009.

The property was, and still is, home to the shoe retailer Steve Madden, which had signed a 10-year lease for the space in 2007.

The landlord said it had reached an agreement with Steve Madden that would effectively
allow Guess to assume the space by mid-summer of 2009. Instead, however, Guess said
it had “no intention of taking possession” of the space, the building owner said in court
documents.

Guess claimed that Chera had called the company’s general counsel after he realized
Steve Madden intended to stay put, and offered to let Guess out of the lease — an
allegation Chera denied in court papers.

Guess also argued that the lease itself was invalid because of a commission-sharing
agreement between Michael Hirschfeld, a commercial tenant’s broker who agreed to help
Chera find a new tenant, and Carol Rosenfeld, a real estate consultant who then worked
for Guess.

Chera promised Hirschfeld’s firm (at the time he worked for Urban Retail Real Estate
Group), a $675,000 commission, but unbeknownst to Guess, Hirschfeld agreed to split
the commission with Rosenfeld, according to the ruling.

Guess considered this an act of bribery, and argued that keeping the company in the dark
about the commission split amounted to fraud.

But U.S. District Judge Deborah Batts ruled that “undisputed evidence demonstrates that
Hirschfield never asked Rosenfeld to do anything improper for the commission.”

The judge also ruled that the lease had multiple provisions requiring the parties to use
written agreements to terminate the lease. The decision did not address the question of
damages, but briefs on the issue are due within 60 days.

The building owner filed the suit in state court in July 2009, seeking compensation for
the lost rental charges, but it was moved to federal court shortly after because of legal
jurisdiction requirements.

Attorneys and representatives for Guess did not immediately return a request for
comment, nor did Chera, the owner’s attorney, Hirschfeld or Rosenfeld.

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