New York lawsuit heralds a wave of rent fights

Chris Dolmetsch and Natalie Wong

A small New York law firm asked a judge to throw out its lease or block its landlord from taking any actions against it in a lawsuit that could soon be replicated across the nation as businesses are unable to make rent due to the coronavirus outbreak.

Heiberger and Associates PC, which ironically specializes in representing landlords in eviction proceedings, says in a complaint filed Friday in Manhattan that the firm “has for all intents and purposes ceased to function” due to the pandemic, which has largely shuttered the New York court system as well as all non-essential businesses.

The firm’s lawsuit is likely a preview of countless more to come. Major retail chains like Mattress Firm and Subway and other tenants, who have closed stores and offices to slow the spread of the coronavirus, are telling landlords that they need to alter leases due to the economic fallout. In some cases, they are citing so-called “force majeure” clauses that allow them to avoid contract obligations due to unforeseen events.

For the moment, many landlords are trying to work things out with tenants. But lawyers say some litigation is almost inevitable because the negotiations can be highly complicated, and many landlords have their own creditors breathing down their necks.

“Landlords are anticipating a host of defaults on rent payments on April 1 across the board, whether it’s retail or office,” says Chris Smith, a lawyer at DLA Piper. “The question is not will there be pain, but how fairly can this pain be spread across all members across the board?”

Heiberger had been paying $23,000 per month in rent for its offices on the 10th floor of 589 Eighth Avenue, a 23-story tower in Manhattan’s Garment District. In its lawsuit, the firm said it had average daily billings of $16,000 before the pandemic hit. It said it has since had to lay off most of its staff.

The law firm’s suit names as defendants its landlord, Tower 39 Associates LLC, and JPMorgan Chase & Co., which provided Heiberger with a letter of credit at the time it entered into the lease. Tower 39 did not immediately respond to a call seeking comment on the suit. JPMorgan declined to comment.

“Clearly, this pandemic of epic proportions which has smothered the economy and all but shuttered court system could not have been foreseen by the plaintiff Heiberger & Associates and defendant Tower at the time of drafting of the lease,” the firm said.