The Gap Inc. v. Ponte Gadea New York LLC

Facts

P operates a national retail network of stores specializing in fashion for men, women, and children. On February 18, 2005, P entered into a lease agreement with D's predecessor-in-interest for premises for the operation of two 'first-class retail businesses,' a Banana Republic store and a Gap store, at 130 East 59th Street, New York, NY 10022. The term of the Lease extended to January 31, 2021. 

Section 1.7(H) defines a 'Force Majeure Event' to mean 'a strike or other labor trouble, fire or other casualty, governmental preemption of priorities or other controls in connection with a national or other public emergency or shortages of fuel, supplies or labor resulting therefrom, or any other cause beyond Tenant's reasonable control.' Article 16 sets forth the parties' restoration obligations, termination rights, and rent obligations in the event of a 'fire or other casualty.' Section 16.1 provides that P 'shall notify Landlord promptly of any fire or other casualty that occurs in the Premises.' Sections 16.2 and 16.3 set forth the parties' obligations to 'repair the damage to the Premises to the extent caused by fire or other casualty,' which obligations are excused 'to the extent that this Lease terminates by reason of such fire or other casualty as provided in this Article 16.' Section 16.4 provides for a proportional abatement of Gap's rent obligations if, 'as a result of a fire or other casualty, all or a portion of the Premises shall not be usable by Tenant' for a period of more than 14 days. Section 16.5 provides D with a termination right if 'the Building is so damaged by fire or other casualty that, in Landlord's opinion, substantial alteration, demolition, or reconstruction of the Building is required,' and Section 16.6 provides P a termination right if (1) an independent contractor's estimate to complete the premises restoration work contemplated in section 16.2 exceeds 18 months, or (2) by reason of a fire or other casualty, 'Landlord has an obligation to perform a restoration as contemplated by Section 16.2,' but fails to do so within the requisite timeframe. Section 16.7 provides that either party may terminate the Lease if 'the Premises are substantially damaged by a fire or other casualty that occurs during the period' of one year preceding the end of the Lease. Section 16.8 provides that P has 'no right to cancel this Lease by virtue of a fire or other casualty except to the extent specifically set forth herein.' Article 21 governs defaults under the Lease. It defines an 'Event of Default' as occurring when (among other circumstances not relevant here) P fails to pay monthly rent when due pursuant to section 1.6(A) (and fails to remedy that failure within five business days of notice from D). (Lease §§ 1.6(A), 21.1(A).) It also defines an 'Event of Default' as occurring when: Tenant defaults in the observance or performance of any other covenant of this Lease on Tenant's part to be observed or performed and Tenant fails to remedy such default within thirty (30) days after Landlord gives Tenant notice thereof, except that if (i) such default cannot be remedied with reasonable diligence during such period of thirty (30) days (including by reason of the occurrence of a Force Majeure Event), (ii) Tenant takes reasonable steps during such period of thirty (30) days to commence Tenant's remedying of such default, and (iii) Tenant prosecutes diligently Tenant's remedying of such default to completion, then an Event of Default shall not occur by reason of such default. Section 21.1(F)'s reference to a Force Majeure Event is the Lease's only use of that defined term. The occurrence of an Event of Default provides D with a right to terminate the lease, in which event 'Tenant immediately shall quit and surrender the Premises, but Tenant shall nonetheless remain liable for all of its obligations hereunder[.]' Article 25 of the Lease, which governs the end of the Lease term, imposes a holdover rental payment liability for use and occupancy after the expiration or termination date of the Lease.

On March 7, 2020, the State declared a state of emergency and, on March 20, 2020, the State ordered non-essential businesses to reduce their in-person workforces by 100% no later than March 22, 2020, at 8:00 p.m. On March 17, 2020, P 'decided . . . to close all its stores in the United States, Canada, and Mexico to protect the wellbeing of its employees and customers.' In April 2020, D had 'suspend[ed] rent payments under the leases' for all of its stores in North America. D served P with a Notice of Termination, which stated that Gap's failure to pay rent, if not cured within five business days, would constitute an Event of Default. On June 8, 2020, New York City entered 'phase one' of its reopening, allowing retail stores to offer curbside pick-up. On June 22, 2020, New York City entered 'phase two' of its reopening, allowing retail stores, including P, to permit customers to shop indoors at no more than 50% capacity, subject to mandatory masking and social distancing requirements. P opened certain of its other retail locations in Manhattan to indoor shopping but not the D stores. P for a short period offered curbside pickup. P continued to use the stores for online order fulfillment (id.) and to store its merchandise. P was 'currently on pace to vacate the Premises by October 15, 2020. Both sides moved for summary judgment. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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