HOLDOVER "PENALTY" ENFORCED (DESPITE PANDEMIC)
During the pandemic’s height, Victoria’s Secret – which describes itself as the “world's largest intimates specialty retailer” – stopped paying the rent on its midtown Manhattan location. And after receiving a notice of termination from its landlord, Victoria’s remained in possession of the space and formal litigation ensued.Even though the virus posed “unique circumstances for retail tenants,” the New York County Supreme Court found the company liable for unpaid rent and holdover damages (for the period September 2020 through February 2021) and issued a judgment in the amount of $2,458,136.06.
Because that figure included a “penalty” of about three times the monthly rent (given the holding over), the company argued, on appeal, that the provision was unenforceable, and that the judgment should be reversed. But the Appellate Division, First Department, didn’t buy that argument. It felt the “bargained-for provision” (which stepped up the rent during a holding-over), was fully enforceable, and noted, as follows:
“Although plaintiffs maintain that treble rent as holdover damages operates as a penalty, such liquidated damages provisions have routinely been held to be enforceable, and plaintiffs failed to meet their burden to demonstrate that such a provision should not be enforced among sophisticated parties ….”
To avoid the provision’s onerous consequences, the AD1 thought that the tenant should have continued paying the rent (under protest), or that it should have secured some kind of equitable or injunctive relief from the Supreme Court. Neither of which this tenant opted to do here.
I guess the AD1 was able to see-through Victoria’s Secret’s arguments?
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DECISION