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$207M Real Estate Lawsuit Claims Valentino Tried to ‘Pervert’ the Pandemic

Italian luxury fashion brand Valentino is being sued by its landlord for as much as $207.1 million for breaking its Fifth Avenue flagship store lease nearly a decade early, according to court papers obtained by multiple outlets.

In the suit, property landlord 693 Fifth Owner LLC alleges that Valentino’s abandonment of the store in December does not relieve it of its duty to pay rent through the expiration of its lease, especially after the Jan. 27 dismissal of Valentino’s own lawsuit that argued the lease was rendered void by the pandemic.

According to the reports, the $207.1 million total is estimated from approximately $6.6 million in rent owed since September, future rent of more than $184 million still owed through July 2029—when the lease is set to expire—and alleged damage done to the property totaling $15.3 million, 693 Fifth Owner claimed in the suit filed in Manhattan Supreme Court of New York state.

If Valentino can deliver the property in the “condition required” by the lease—which includes reimbursing the 693 Fifth Owner for the $15.3 million in property damages—its obligation in future rent owed could be reduced to a total of three years, which would still total over $58 million, the landlord said.

Meanwhile, Valentino has already signed a new lease for an 8,700-square-foot Manhattan space at 135 Spring St. in Soho, the court documents claim.

In June, Valentino USA Inc. sued 693 Fifth Owner, claiming that the pandemic and its resulting lockdowns and mandatory closures “massively disrupted” its sales and invalidated the very purpose of its Fifth Avenue lease. In particular, the brand said that the location “has been substantially hindered and rendered impractical, unfeasible and no longer workable” due to the conditions at the time.

Per the lease, Valentino was required to “continuously operate” at its space, the luxury Italian label said, but alleged that it was unable to offer in-store sales or associated services like fittings, which were vital to its business and central to the lease’s purpose.

Valentino said in its suit that it notified the landlord that it would be packing up and leaving by the end of the year. But the building’s owner refused to accept such a move, arguing that the pandemic notwithstanding, Valentino’s obligations haven’t been excused. The retailer occupied the entire retail space in the building, or four floors, while the rest of the 20-story, 100,000-square-foot building is used for office space.

Justice Andrew Borrok of the New York Supreme Court for New York County dismissed the Valentino suit last month and said in the order that “no wrongful act of the landlord is alleged to have caused the necessity” of the decision by Valentino to move out of the building. Borrok also pointed out that even though the pandemic was not specifically considered by either party in the lease, that didn’t change the result of the decision.

In the recent suit, the landlord argues that despite Valentino blaming the pandemic, competition from online retailers has been eating away at the store’s profits for years.

“In fact, it is in response to these declining business prospects that defendants have opportunistically attempted to capitalize upon and pervert the international Covid-19 pandemic in order to evade their lawful obligations under the lease and guaranty, respectively,” the landlord said.

This dismissal prompted Valentino to appeal on Feb. 17, asserting that the court misapplied the legal standard for a motion to dismiss. Specifically, Valentino claims that it “adequately pled each of its causes of action for (i) frustration of purpose, (ii) impossibility of performance, (iii) rescission based upon failure of consideration, (iv) constructive eviction and (v) other declaratory and/or injunctive relief that should not have been dismissed at that juncture.”

Brick-and-mortar fashion retailers of all sizes and in all areas have struggled during the pandemic, with Manhattan flagships in particular taking huge financial hits when combining reduced traffic from homebound tourists and office employees working remotely, early forced store closures and already exorbitant rent costs. In many situations, this has caused contentious relationships between retailers and landlords, who often have been stuck with the bill in the wake of the store closures.

As recently as late 2020, Stella McCartney was tied in a $9 million legal battle over its Madison Avenue store in Manhattan. In November, landlord Mallett, Inc. filed a complaint in New York state court claiming that it entered into a 10-year-long sublease agreement with Stella McCartney’s American arm in 2016, yet the London-based fashion brand allegedly stopped paying in April.

Victoria’s Secret also sued the landlord of its midtown Manhattan store, claiming the building’s owners attempted to collect more than $1 million per month in rent after the shutdown despite the terms of the lease being unenforceable.

The highest-profile litigation thus far in the U.S. was that of  Gap Inc. and shopping center operator Simon Property Group, which sued the San Francisco-based retailer for $65.9 million in unpaid rent for April, May and June, and later Brooks Brothers for $8.7 million. After Gap countersued Simon in July in effort to cancel the leases, Simon clapped back with another suit of its own in August, this time for $107 million in unpaid rent. Like Valentino’s landlord, Simon alleges that the retailer was using Covid-19 as a pretext to avoid the lease payments.

In January, the Real Estate Board of New York said rents sought for Manhattan retail space fell throughout the borough, including an 8 percent drop in the stretch including Valentino’s store.

“The building owner tried to work with Valentino during the pandemic with the understanding that these are difficult times,” 693 Fifth Owner LLC’s lawyer Robert Cyruli said. “We look forward to presenting our case for damages in court.”

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