In one of the first rulings in a Covid-related landlord-tenant dispute, a judge has decided that an office tenant is on the hook for months of unpaid rent, despite the pandemic killing its business.
Bold Food, the hospitality group founded by celebrity chef Bobby Flay, leased an office on the 12th floor of 1140 Broadway when the pandemic hit. But Covid “destroyed Bold Food’s ability to operate and earn revenue,” as lawyers for the firm wrote a memorandum of opposition to a lawsuit filed against the company.
Eventually, the company notified its landlord that it would vacate the space at the end of June without paying back or future rent, citing Covid-related financial woes as the reason.
Now, a judge has determined that the restaurant group was in the wrong.
“This is not a case where the office space leased was destroyed or where a tenant rented a unique space for a specific purpose that can no longer serve that function,” Judge Arlene Bluth wrote in her decision, filed Dec. 3.
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Bold Food’s lawyers cited frustration of purpose as the reason for terminating its lease, meaning that since they weren’t able to use the space, the lease was void, according to the complaint. Executive orders from Gov. Andrew Cuomo and Mayor Bill de Blasio declaring a public health emergency and limiting service in restaurants were submitted as exhibits to bolster Bold Food’s claims.
But unlike restaurants, which had to scale back in-person operations as a direct result of those executive orders, the firm was not as directly affected, the judge argued.
“It is critical to point out that the tenant merely provided restaurants with consulting services. It was not shut down by any public health directives,” Bluth noted. “In other words, the tenant was one step removed from the governor’s public health orders relating to restaurants because their business assists restaurants.”
An attorney for Bold Food did not immediately respond to a request for comment.
“This is the first time that there’s been a judgment entered for a landlord that’s specifically addressed and rejected these defenses to the extent they’re asserted based on the pandemic or the government orders in response to the pandemic,” said Jeremy Cohen, a partner and commercial litigator with Seyfarth Shaw, the firm representing the landlord.
In the original case, filed in New York State Supreme Court in June, the landlord, 1140 Broadway LLC, accused Flay’s restaurant group of breach of lease and asked for nearly $380,000 in unpaid rent, damages and fees.
Thousands of lawsuits have been filed both by and against office and retail tenants. In them, tenants try to get out of leases, while landlords argue that delinquent tenants owe them money. But this decision may set a precedent that the frustration of purpose does not apply for office tenants.
“Landlords are operating a business too, whether it’s a big landlord with a lot of buildings, or a smaller property owner,” Cohen said. “They’ve got bills to pay as well that don’t get abated or deferred or anything as a result of the pandemic.”