Victoria’s Secret Just Filed Legal Paperwork To Break The Lease On Their Main Store. Can Small Business Owners Do The Same?
Patty Lamberti Program Director
StockSnap from Pixabay
Victoria’s Secret already had a slew of financial problems before Covid-19 raced across America.
They had planned to close 25% of their stores nationally.
In early May, negotiations to sell a majority of their company to another firm fell through.
When the Coronavirus hit, Victoria’s Secret, like every retail operator, was forced to close all of their stores.
On May 26, Victoria’s Secret filed a summons against the landlord of their flagship store in Manhattan.
They are arguing that their $10 million lease should no longer be enforceable because the Coronavirus was an unforeseeable event that destroyed their business model. In legal terms, this argument is called "frustration of purpose," and could possibly be used to void a legal agreement.
If you own a store and are considering breaking your lease with a landlord, you may be wondering if you can try the same thing. Here’s what you should know:
More retailers will probably try to do something similar, but it’s unclear how courts will respond.
Victoria’s Secret is the first major brand to try to legally break their lease. They technically filed a summons, which is a step lawyers take before officially filing a lawsuit.
It says, “Because of the COVID-19 pandemic and Governor Cuomo’s ‘New York State on pause’ executive order (and related executive orders), the lease and guaranty are no longer enforceable under the frustration of purpose doctrine, as well as other common law doctrines and provisions of the lease and guaranty.”
Some see summons’ as a negotiating tactic, or a way to tell a landlord, “I mean business.”
The landlord isn’t backing down. Their lawyer responded that the lingerie seller was simply “exploiting the current health and economic crisis.”
It remains to be seen how courts will respond to Victoria’s Secret. If you’d like to try something similar, it may be best to get an attorney to do the talking and writing for you. At Court Buddy, we can match you with an afford commercial lawyer.
There are other options too.
On May 19, Hertz simply wrote their landlords letters stating that they weren’t going to pay rent on any of their commercial spaces for six months.
A few days later, they filed for bankruptcy.
Bankruptcy is a way for companies to get rid of some debt (like back rent), close some stores and restructure – without necessarily going out of business.
J.Crew, for example, also filed for bankruptcy and won a court approval to defer its rent payments.
Talk to your landlord.
Your first step should be to pick up the phone and talk to your landlord about possible options.
Many experts believe that commercial landlords, more so than residential landlords, are willing to work something out with business owners until stores can re-open.
After all, commercial landlords don’t exactly have a waiting list of new business owners waiting to take over the space.
Play the prediction card.
Remind your landlord that retail won’t look the same post Covid-19.
The real estate research firm Green Street Advisors expects more than half of mall-based department stores to close by the end of 2021, leading to "excessive dark mall anchor space."
This prediction can help you negotiate with your landlord before you take any legal drastic steps.
If your landlord doesn’t work with you during this crisis, it hurts their pocketbook just as much as it will hurt yours.
Remember, we’re always here to help if you need us.
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