Valentino Sues Its 5th Avenue Flagship Landlord

*** The writing does not, and is not intended to, constitute legal advice by any means***

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Valentino on the 5th

The pandemic has ravaged brick-and-mortal stores, effectively upending the day-to-day operations of fashion retailing as we know it. Flagship stores on the 5th Avenue can't be an exception. For many luxury fashion brands, a 5th Avenue flagship store is highly symbolic. It is the embodiment of renown. However, renting a space on the 5th isn't something every brand can afford without financial burden. The burden, however, has become relentlessly intolerable as New Yorkers stayed home to curb the spread of the virus. Although the current situation might ameliorate with the rollout of Phase 2 under which fashion retailers (except malls) can open their doors subject to a set of regulatory guidelines, no easy way out is in near sight.

The scar has been left and remains deeply unhealed. Although an array of luxury department stores and high-end boutiques resumed their operations in various forms across Manhattan, it is undeniable that things can't just return to the pre-COVID-19 era. As a preparation for the new normal, lawsuits regarding retail leases are on the rise. Last month, Victoria's Secret was the first to initiate a lawsuit against its landlord, claiming that the pandemic has rendered it impossible to continue "tendering a monthly rent of $937,734" when the purpose of the Union Square store lease is "completely frustrated". (Note: the descriptive "completely frustrated" is referring to the doctrine of frustration in contract law. See my earlier post for a more detailed explanation.)

Valentino is taking things one step further. It wishes to terminate and walk away from its long-term lease, according to a complaint filed to the Supreme Court of the State of New York. Valentino signed a lease for its 5th Avenue boutique back in May 2013, and the lease is set to expire in July 2029. The lawyer for the landlord notified Valentino that the landlord has no intention of accepting a surrender (a legal term for termination of tenancy) on the part of Valentino without the imposition of a penalty. 

Can Valentino's obligations under the lease agreement be excused? In the similar vein with Victoria's Secret, Valentino would argue that the very purpose of the lease is frustrated because its four-story boutique has been rendered inoperable by governmental regulations, which, admittedly, Valentino had no power to defy. At the same time, the path forward is not that favorable to Valentino. In terms of precedents, courts are not particularly receptive to the idea that economic downturns and their aftermaths alone are sufficient to deem a contract frustrated in the eyes of the law. Something different, however, is in play. Judges are likely to take into consideration a patchwork of state regulations, which are still evolving to address the situation with flexibility. Also, with the onset of Phase 2, Valentino started a curbside pick-up, which might make its frustration argument weaker. Here, I think that Valentino still can make a forceful argument that the pickup has little do with the utilization of actual space rented. The value of the rent reflects something much bigger than that. Although I should say the scale is tilted slightly in favor of the landlord, nothing is for given as it is the case with every COVID-19-related issues.