Judges mixed on how government shutdowns affect leases

Decisions on Covid-related rent cases are slowly rolling in, but on the question of whether the pandemic freed tenants from their lease obligations, the jury remains out.

Most recently, a judge ruled that Philippe Chow, a luxury restaurant located in the Dream Hotel Downtown, owed rent to its landlord, despite being closed amid the pandemic.

“According to the lease, plaintiff must make a choice: stay and pay rent or terminate and leave,” Judge Melissa Crane wrote in her decision.

Philippe Chow had argued that because of lockdown orders, rent was not owed both under the casualty clause of the lease and because the purpose of the lease had been frustrated. Additionally, it alleged that the landlord, an entity controlled by the Dream Hotel Group, had, by asking for rent, engaged in tenant harassment.

Neither Philippe Chow nor Dream Hotel responded to requests for comment.

“It’s going to be difficult for some tenants, but we have to enforce contracts as written,” said Luise Barrack, who leads Rosenberg & Estis’ litigation department and was not involved in the litigation. “And in this case, that is what the judge said.”

The case is one of the first rulings for restaurants in New York, potentially setting a precedent. Rulings involving other kinds of businesses have similarly come in on the side of the landlord.

For example, Gap had argued that the pandemic had cancelled rent at its Times Square flagship. Judge Debra James disagreed, ordering the company and its Old Navy subsidiary to keep paying nearly $3 million a month in rent at the 60,000-square-foot space.

She did, however, reduce the rent by 10 percent, citing the “extraordinary circumstances” of the pandemic.

In one of the earliest rent rulings of the pandemic, a federal bankruptcy judge reduced an Illinois eatery’s rent by 75 percent, having decided that the force majeure, or “act of God,” lease clause applied.

In another case — 267 Development v. Brooklyn Babies and Toddlers — Judge Loren Baily-Schiffman ruled in favor of the tenant, saying that the premises had been rendered inaccessible and, on top of that, the landlord had engaged in tenant harassment.

“The government shutdown was unforeseeable and could not have been built into the contract,” the state Supreme Court judge wrote. “Under the circumstances presented, this court
finds that performance under the subject lease was made impossible.”