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Gap and Old Navy ordered to pay $24 million in back rent on stores in Times Square

The decision, say the landlord’s attorneys, will set a ‘flagship’ precedent for landlords of locations with unique rental values.
Al Urbanski
Statewide shutdowns or no, flagship stores in pricey locations like Times Square still must pay their rent, according to a New York appeals court.

Gap Inc. has lost its appeal. 

A New York City court rejected an appeal filed by The Gap Inc. and Old Navy LLC that would have allowed them to terminate long-term leases at flagship stores in Times Square due to their claims of being unable to operate them successfully during the COVID-19 pandemic.

Lawyers representing the retailers argued that the drastic decline in business they suffered at locations in one of the world’s most highly trafficked locations qualified them for the so-called Yellowstone Injunction, which prevents a landlord from evicting a tenant for a breach of the lease like nonpayment of rent.

Gap and Old Navy further argued that they had suffered “frustration of purpose” when their stores were shut down by a New York State mandate in 2020. The appellate court, however, upheld the judgment set down by state Supreme Court Justice Debra A. James in the original case rejecting all of the tenants’ claims that they should be able to shutter their two stores at 1530 Broadway and write off their rent due to the impossibility of being able to operate flagship stores during the pandemic.

“The Court recognized that when you enter into a contract, you need to honor the terms of the agreement,” said Atty. Norman Flitt of The Rosenberg & Estis law firm that represented landlord 44-45 Broadway Leasing Co. in the appeal. “Here, the agreement did not afford the tenants any rent abatement as a result of the closures mandated during the COVID-19 pandemic.”

Retail chains should take note that leases will be enforced in accordance with their terms, even if they are shut down in a barren Times Square during a global pandemic, said the firm’s Alex M. Estis.

“This case will stand as ‘flagship’ precedent for commercial landlords of iconic flagship locations as this decision should put to rest similar baseless claims by other commercial tenants based on these COVID defenses,” Estis said. 

He also noted that the original lead attorney on this case, Warren A. Estis, who passed away in April 2022, felt that this case would establish a strong precedent for landlords of iconic properties which have unique rental values.

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