While police barricades block the entrance to Trump Tower at 725 Fifth Avenue and severely disrupt pedestrian access to nearby retail stores – where retail tenants pay rent that is among the highest per square foot in the world – it is likely that neither New York law nor the typical retail lease will provide any recourse for the disruption resulting from the impaired storefront access. The U.S. Secret Serviceimposed blockade, intended to ensure the security and safety of President-elect Donald Trump, impacts one of New York City’s busiest shopping districts. Affected retailer-tenants are reporting decreased consumer traffic and dips in sales revenue during what is typically one of their most lucrative shopping seasons, but are left with little in the way of a remedy.
Landlord Liability Limited
While most commercial property leases provide tenants with the right to quiet enjoyment, a right to access their premises, and rent abatement provisions when their space is unusable, most leases also contain language limiting landlord liability that has proven to be a formidable obstacle for tenants seeking recovery from landlords in circumstances like these.
Many leases include what are known as “unavoidable events” provisions, which insulate landlords from liability for acts of others that are not within the landlord’s control. For example:
This Lease shall not be affected, impaired or excused, and Landlord shall not have any liability to Tenant, to the extent that Landlord is unable to perform Landlord’s obligations under this Lease by reason of any cause beyond Landlord’s reasonable control, including, without limitation, governmental preemption, enemy action, acts of war, acts of terrorism, national emergency, fire or other casualty, strikes, labor troubles, civil commotion or riot, unavailability of labor, fuel, steam, water, electricity or materials, the occurrence of an act of God, or any other cause that is beyond the reasonable control of Landlord.
New York courts have upheld similar lease provisions intended to insulate landlords from liability for the acts of others. For example, following 9/11, the US Army and NYPD restricted access to significant portions of lower Manhattan. One affected tenant filed a claim seeking rent abatement because it could not access its leased premises.1 In rejecting the tenant’s claim, the court held that the lack of access was not the result of any wrongful act of the landlord, and that the landlord was not responsible for the acts of governmental authorities.2 Similarly, after Superstorm Sandy, many downtown businesses were left without electricity or telephone service for months. One such business filed a claim asserting that, due to a lack of electricity, the leased premises were unusable and, as such, the tenant was entitled to a rent abatement.3 In rejecting the tenant’s claim, the court held that because the lease stated that the landlord was not responsible for providing electricity, the tenant was not entitled to any rent abatement.4
Commercial property leases also usually address rent abatement where the premises are not usable or accessible by the tenant by reason of casualty. Such lease provisions do not apply to situations like the Trump Tower disruptions, however, given the lack of physical injury to the affected retail premises.5
Retailers are also unlikely to succeed on a claim of partial eviction. As noted above, the impediments to access are caused by governmental authorities’ exercise of their police power, not any action of the landlord. Moreover, courts have rejected claims for breach of the covenant of quiet enjoyment or claims for either a partial, actual or constructive eviction based on claims that access to the tenant’s premises was “slower, less convenient, less pleasant, and more difficult.”6
Can’t Blame the Neighbors
Tenants have been no more successful in obtaining recovery from neighbors whose actions interfere with a tenant’s business.
In certain instances, a property owner can bring a private nuisance action against a neighbor whose actions affect its property. However, New York courts have in the past rejected nuisance claims arising from enhanced security measures. For example, following 9/11, enhanced security measures around the New York Stock Exchange had a dramatic impact on the business of a nearby parking garage, reducing the number of its cars/customers from around 160 per day to less than 60 per day.7 The parking garage sued to stop the NYSE from interfering with its business, invoking a public nuisance theory. In rejecting this claim, the appellate court noted the reasonableness of the security measures in light of the heightened risk of a terrorist attack. The court also pointed out that, in order to sustain a claim for private nuisance, the party’s injury must be different in kind than the injury suffered by the community at large.8 Because the injury suffered by the parking garage was no different than that of the community at large, its claim was dismissed.9 Similarly, for retailers facing a Secret Service blockade, the injury suffered by each affected retailer is roughly the same as that of the community at large, and a claim based on nuisance would be unlikely to succeed.
Insurance Coverage Sparse
While many businesses have business interruption insurance that is intended to cover lost profits from unanticipated events that decrease sales, those policies are unlikely to be of much comfort to retailers along Fifth Avenue. While in the past typical business interruption policies provided business interruption coverage when access to the insured’s property is prohibited, impeded or discouraged by civil governmental authority, after 9/11, many insurers deleted this provision to provide coverage for loss of income only if the insured has to vacate its property due to a casualty or other disaster. The policies usually require that there be an actual physical injury to the tenant’s premises before kicking in, thus making it unlikely that Fifth Avenue retailers – whose stores remain physically intact, although more difficult to access – could recover under their business interruption policies. Nonetheless, retailers should check with their counsel and their brokers regarding the terms and conditions of their coverage because some policies may have more favorable wording.
Government Unlikely to Be Held Responsible
Except in rare instances, tenants have not been any more successful in obtaining recovery from regulatory authorities.
In certain limited instances, courts have recognized that governmental action rendering property worthless is, in effect, a governmental taking that entitles the injured property owner to compensation. While these cases typically arise in the zoning context, the courts have made clear that in order for an affected property owner to recover, the governmental action must render the property “unsuitable for any reasonable income productive or other private use for which it is adapted.”10 Even a “substantial devaluation” of the affected property is insufficient; courts have held that a 79% diminution in the value of property is insufficient to sustain a regulatory takings claim.11 While Fifth Avenue retailers are likely to have a diminution in the value of their property, the decrease in value will not be sufficient to establish a regulatory taking, even if the law could be extended to police activity.
While retailers along the Fifth Avenue corridor are going to be subject to severe disruption that will undoubtedly decrease foot traffic and sales, at least through the upcoming holiday shopping season (and potentially, for much longer), they will likely have no readily identifiable source of recompense.