Backal Hospitality Group CEO Arthur Backal, 627 West 42nd Street and Moinian Group CEO Joseph Moinian (Images via Backal, Google Maps, Moinian)
A commercial tenant looking to skip rent in light of pandemic-related closures just suffered a setback.
Backal Hospitality Group argued that because Gov. Andrew Cuomo banned large gatherings, it could walk away from its lease at the Moinian Group’s 627 West 42nd Street. Backal brought the case after Moinian drew down a $500,000 letter of credit in June to collect more than $400,000 in rent.
But a state judge ruled the tenant is still on the hook for future rent.
Backal argued that because it eventually returned the keys to the owner, it no longer owed $10 million in future rent — and should get its $500,000 back. That did not fly with Judge Kathryn Freed, a former City Council member who represented lower Manhattan in the 1990s.
She denied Backal’s petition Aug. 3, ruling that Backal “unilaterally attempted to terminate the lease in a manner violative” of it.
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Had the decision gone the other way, retail tenants across the city — and the country — might have copied the legal strategy to void their own lease agreements in light of Covid-19.
“That would have been incredibly draconian,” said Jeffrey Goldman, a partner at Belkin Burden Goldman, which represented the landlord. “This case sends a signal to commercial tenants that their claims of impossibility of performance or frustration of purpose will not be met with success.”
Goldman said if leases cannot be voided that way, it will bring commercial tenants and landlords to the negotiating table to restructure them, rather than tying them up in court fights.
Backal Hospitality Group did not return a request for comment.
A similar case brought by an eatery in Chicago had a more favorable outcome for the tenant. A federal bankruptcy judge ruled in June that the restaurant could pay just 25 percent of its rent from April to June because a March 16 order banning dining amounted to a “force majeure,” a clause which protects businesses from forces outside their control.
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