On The Madison Avenue: Stella McCartney Is Sued by Her Landlord
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| Stella McCartney on the Madison Avenue |
Last year, I reported that Valentino initiated a lawsuit against its landlord to void their long-term lease agreement for the Fifth Avenue flagship store. Valentino's central position was that a patchwork of city-wide COVID-19 regulations had rendered the premises practically inoperable. Now, Stella McCartney, the pioneer of sustainable fashion, is on the receiving end of a factually similar lawsuit. The landlord for Stella McCartney's Madison Avenue store sued the luxury brand for having failed to pay rent since last April. The landlord filed a complaint with the Supreme Court of the State of New York last November. According to their 10-year lease agreement executed back in 2017, Stella McCartney is obligated to pay approximately $1.5 million in rent annually. The complaint demanded that Stella McCartney pay the sum of $0.9 million, which is equivalent to the remaining balance plus accrued interest. On January 8th, Stella McCartney filed an answer in which it vehemently contended that the agreement should be voided in light of COVID-19 and a series of regulatory measures that have ensued since the pandemic. Today, I will explain in detail three affirmative defenses Stella McCartney outlined in her reply and articulate my personal evaluation of the strength of each defense.
Stella McCartney claims that the purpose of their lease agreement has been effectively frustrated due to a string of executive orders that mandated shutdowns to protect the health of its employees as well as to stem the spread of the virus. The complaint therefore calls into attention that the rent should be "at least be suspended or excused". As much as I am sympathetic to this point, I am not entirely sure whether that particular argument will work to her advantage. If you look at some precedents, courts have been unreceptive to the idea that economic downturns and their aftermaths alone can render a contract frustrated in the eyes of the law. See generally Elavon, Inc. v. Wachovia Bank, Nat. Ass'n, 841 F. Supp. 2d 1298 (N. D. Ga. 2011). In my view, that's why Stella McCartney emphatically notes that COVID-19 is truly "unprecedented" in nature, unlike other events that created "some ebb and flow to the economy" in the past. Fair enough! Also, I have to admit that there's an important variable playing out in this litigation: city-wide mandatory regulations. Her Madison Avenue store was in no position to defy them. Stella McCartney can advance an argument that it is unfair to pay the missing rent in full.
Another affirmative defense is a failure of consideration. I think counsel for Stella McCartney was eyeing on this because, doctrinally speaking, a contract is deemed void absent consideration. Yet, I found really intriguing how the complaint characterized what the consideration should be here. It seems to suggest that the consideration contemplated is "the beneficial use and occupancy of [the Madison Avenue] premises". Yes, it is true that, for luxury flagship stores, the rent reflects something much bigger than the actual use of the space. Having a flagship store either on the Fifth Avenue or the Madison Avenue is quintessentially a symbol of global success. Still, I'm not particularly convinced that the consideration exchanged should be narrowed down to an actual use necessarily. The landlord can argue that the consideration is the legal status of a tenant, which then allows the tenant to legally occupy the premises. So I'm really eager to learn how a judge will examine this affirmative defense.
The final affirmative defense that's noteworthy here is the idea of force majeure. The term has surfaced quite frequently in most COVID-19-related lawsuits. However, Stella McCartney's complaint did not fully explore the idea other than just throwing it as a dart in its legal arsenal. The parties would normally use the phrase such as "events that are reasonably unforeseen by the both parties" to denote what constitutes force majeure. So if the parties were to pursue a lawsuit, they will fight over that clause to see if COVID-19 can be characterized as something beyond both parties' contemplation. For example, if the provision contains the language along the lines of "pandemic", "outbreak of infectious disease", or even "global health crisis", the performing party would have a hard time defending its non-performance as the insertion is likely to evidence the parties' intent of having contemplated the possibility of a operation-disrupting event like COVID-19, however unprecedented it is. For now, I cannot predict whether force majeure favors one over the other, especially given that I have no access to their contract. The landlord soon submit its reply to the answer. When I obtain a copy of the reply, I will share it with you. Will the glory of the Fifth or the Madison be lores of a bygone era? This is definitely something to think about if you are a luxury brand that's planning to enter into a long-term lease agreement, as contractual arrangements of long-term nature are becoming increasingly typical in the market.
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