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New York Court Allows J.Crew to Shutter Under Terms of Mall Lease Despite Continuous Operations Provision
Malls across America, long suffering even before the rise of COVID-19, are now forced to confront a wave of store closures that will inevitably result from current economic and social factors (including social distancing). Troubled retailers will, without doubt, seek to close their failing mall locations. To stem these efforts, landlords have applied to courts for injunctive relief to force stores to remain open and operating, despite lagging sales, through the enforcement of the "continuous operations provision" found in mall leases.
Recently, on May 1, 2020, a New York appellate court issued a decision in Eastview Mall, LLC v. Grace Holmes d/b/a J.Crew and J.Crew Group in which it vacated a preliminary injunction designed to force J.Crew, a retailer in a Victor, New York mall, to remain open under the terms of this provision, in part due to the existence of a liquidated damages provision contained in the parties' lease. In vacating the preliminary injunction, which reversed the July 2018 ruling of a lower court that preliminarily enjoined J.Crew from closing, J.Crew was freed from a restraint on its ability to shutter the store.
In originally granting the preliminary injunction, the lower court was not persuaded that the liquidated damages provision could make the mall whole because, among other things, J.Crew's store was very important to the mall's success and closure would unfairly prejudice the mall. This fact, it found, rendered it more inequitable to the Landlord if J.Crew closed than forcing the store to remain open would be to J.Crew. J.Crew's store, which was only 6,000 square feet in a mall of a million square feet, had argued that Gross Sales fell below the kick-out threshold, entitling it to exercise its contractual early termination right.
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