When Presidential Security Interferes with Revenue
and the Customer Service Experience
In the words of a troupe of Britons, first heard long ago, “And now for something completely different.” This post is a transatlantic collaboration, co-authored by members of the fashion and real estate law practices of Phillips Nizer LLP, of New York City, and Fox Williams LLP, of London. The firms address the same legal question from the perspective of New York law, in the segment authored by the Phillips Nizer, and English law, in the segment authored by Fox Williams.
. . . . . . . . . . . . . . . . . . . . . . . .
The secondary residence of U.S. President Donald Trump is located in the eponymous skyscraper that bears his name located in an area of Upper Fifth Avenue in New York City, at the apex of the most important and most expensive shopping district in the Western Hemisphere. Prized retail space can be found in the building and in surrounding properties. This is not the typical environment for establishing a security cordon for the protection of the President of the United States.
If President Trump continues to maintain Trump Tower as a secondary residence and working office (as he had done while President-elect), we can surmise that protective and preventative measures that have been in effect for weeks, will continue. Anyone brave enough to attempt to enter the still-cocooned retail spaces will receive a quick course in world-class security. You have to talk your way past federal and local law enforcement officers to get into Gucci, which is in Trump Tower but accessible by the street, to say nothing of what you need to do to get into the building’s atrium for the chance to score a latte at Starbucks. In short, the conversion of Trump Tower into “White House North” has not been good for business for any tenant who is not named Trump.
New York City and State Law
The retail tenants may seek ways to mitigate their losses. The law and most leases, however, are not particularly sympathetic to this type of economic collateral damage, which typically falls under the category of “consequential damages.”
As a general rule, a tenant’s choice of remedies when things go wrong in a lease is to seek an abatement of rent, or to seek to cancel the lease. Lost profits are considered speculative by the courts and are almost never awarded in cases involving commercial leases. Most commercial leases have specific prohibitions against the award of lost profits.
One possible alternate claim would be for what is known as “constructive eviction.” That happens whenever something within a landlord’s control substantially interferes with the use and enjoyment of the leased premises. The catch here is that it has to be something the landlord does or fails to do; in the case of the President, however, the security is not his own but that of the United States government, working closely with the New York City Police Department.
Many leases provide that, if access to the premises is thwarted or impeded by fire or other damage, rent will be abated. For those leases, there could be support for the claim that the extraordinary event of government restraint on access forms the basis for an abatement of rent.
New York courts have held that a party may be relieved from its duty to perform whenever an unforeseen event has occurred that destroys the underlying reasons for performing the contract. The argument that the United States Secret Service and the local police have turned your block into the Maginot Line is not a familiar one, but it could, at least in theory, gain traction if damage is shown to be acute enough.
Finally, there is always a claim against the government—but that is probably pushing it a bit. Whenever property is taken from a private individual by the government under “eminent domain,” there must be payment of just compensation. There is an exception to the rule that provides that there is no compensation when a taking is due to the exercise of “police power.” An example of police power is the right to damage or destroy private property (without compensation to the owner) when such an act is necessary to protect the public interest. If you want to know what that means, watch the next time someone parks an expensive car in front of a fire hydrant when a blaze has started and fire fighters arrive with their axes.
In short, there is no clear way, through the use of litigation, for retailers caught within the security cordon or even just outside it to seek redress. However, the President is nothing if not a deal maker, and as a sage old lawyer once suggested, “If you don’t ask, you don’t get.” It cannot hurt to contact the landlord and practice your take on “the art of the deal.”
The position under English law has differing aspects (and certainly uses a different legal language) but is similar. It is true that this could be an issue that is unique to the circumstances in which these retail tenants find themselves, but it raises issues pertinent to landlords and tenants in both jurisdictions. One can easily envisage similar circumstances in London, for example, affecting footfall to tenants’ retail stores and outlets, be that at the instigation of the state, or from other sources. What if a prominent politician or other VIP took offices in Regent Street or Bond Street? What if state security demanded establishing a similar cordon for some other reason, one that interfered with the tenants of prime retail space in the capital?
In English law, the concept of a tenant (as opposed to a landlord) seeking to “cancel” or “determine” a lease is almost unheard of without the agreement of the landlord (for example, a surrender or a break clause). Whilst English contract law has well-established principles of breach of a contract leading to its termination, this does not translate well to the realm of landlord and tenant law, where a tenant is seeking to terminate the lease (this is not the case with the landlord, who can usually seek to forfeit the lease in the event of a tenant’s breach).
So, with this avenue all but closed to tenants, they would usually need to focus on the terms of the lease itself to seek damages or a court order that the interference must stop.
Like our U.S. colleagues, English lawyers would express doubt as to whether the concept of rent abatement can apply to these facts. For the reasons given above, where an English lease contains a rent abatement – or “rent cesser” – clause, that clause normally relates to circumstances in which the property in question is damaged or destroyed (usually due to circumstances for which the landlord is insured) only to the extent that it is uninhabitable. If that is the case, the rent will not be payable whilst the property cannot be occupied. It might be stretching matters too far (without specific wording in the lease) to extend this well-established concept to fit these facts. Trump Tower (or the hypothetical English equivalent) is not a property that is damaged; it is the access to it that has been compromised.
If this offers little comfort to tenants, there are two further (and largely overlapping) English law concepts that might assist. English law has long recognized that landlords must not “derogate from their grant” and the obligation to allow the tenant “quiet enjoyment” of the property. If proved, they entitle a tenant to sue the landlord for damages.
The former principle states that, in granting the lease, the landlord has agreed to confer certain benefits on a tenant, and should not do anything that substantially deprives the tenant of those benefits. The latter requires the landlord to ensure that there is no interference with the tenant’s possession and enjoyment of the property itself.
English cases on the above where tenants have succeeded, have included erecting advertising billboards obscuring the tenant’s premises, alterations by a landlord that discourage passers-by, and causing noise and disruption by way of building works adjacent to the tenant’s property.
So, it would appear that English tenants might be better placed in these circumstances than their U.S. counterparts. However, as in America, tenants are likely to run into the same problem they would encounter had they set up shop on Fifth Avenue instead of Regent Street: is the presence of such high security something instigated (or even sanctioned) by the landlord, or is it a matter of national security, out of the hands of whatever corporate vehicle happens to own the freehold of a given retail unit? The unfortunate truth is likely to be that the security presence is not the ‘fault’ of the landlord, and thus, the landlord cannot be said to have violated either legal principle.
Tenants may therefore find themselves, as in America, caught between a rock and a hard place: a landlord who is ‘not at fault’ and a rent abatement clause that does not do enough to protect their interests. Perhaps one for English tenants’ lawyers to think about too when drafting leases of high-end retail and fashion outlets in the busiest and most desirable of the U.K.’s shopping districts.
Credits: Steven J. Rabinowitz
Steve is counsel in Phillips Nizer’s Real Estate Law practice.
At Fox Williams, Liz advises on a broad range of commercial property transactions, both freehold and leasehold, including property management, investment acquisitions and disposals, secured lending, property finance, general landlord and tenant issues. Tom is a property litigator, and heads up the firm’s Real Estate dispute resolution practice.
Visit the Fox Williams Fashion Law Group website at www.fashionlaw.co.uk.
Phillips Nizer would like to thank Liz and Tom for providing a non-U.S. perspective on this very interesting, and in this instance, extremely unique and unusual circumstance in real estate law affecting the landlord-tenant relationship.
Whether you call it shoplifting or shrinkage and the people tasked with stopping it the house detectives or the asset protection department, and regardless of what new technology you put into place, if you are a retailer, stealing is a problem that will never go away. When I was in high school, back in New Orleans, I worked weekends and summers at the department store my family owned and operated (and long since shuttered). I got to see firsthand the extent of the problem—which was harder to track in those days before electronic inventory controls. The manager of my department was arrested for stealing a pair of Mickey Mouse suspenders from the warehouse. He had been collared by the four-man security team brought in to replace the aging and quite ineffective store detective. During a big three-day sale taking place over a long summer weekend, as the junior and surely least valuable member of our sales team, I was relegated to sitting in the men’s fitting room, watching for thieves. All I got for my trouble was the chance to alert security to the customer who thought that the fitting room stall belonged in the men’s bathroom and had used it accordingly. That incentivized me to petition for repatriation to the sales floor and, just to be sure my position did not revert, I became the top sales person of my department during the next three-day sale.
Jump some years ahead, and now I find myself working with clients in retail on the law of asset protection. There was the time I had to work with the manager and assistant manager of one department store branch that was being sued for assault and false imprisonment by an alleged shoplifter who claimed he had been injured in his apprehension. The plaintiff appeared at the first hearing on crutches, and justice being as slow as it is, by the time the second hearing came around, he was practically pole vaulting with the things, which his lawyer, who could now hardly catch up with him, obviously told him to keep using in an effort to garner sympathy and a favorable settlement.
It was frustrating to our client, but none of that has changed much. You still need to be sure that you work with counsel to know what you can and cannot do in pursuing, approaching and ultimately challenging a suspected shoplifter. There are rules about that, and they vary from state to state. Just as an example, in New York you need to show that the suspect took possession of the item with an intention to make off with it. If you are found purposefully trying to sneak out a T-shirt by wearing it, give your lawyer a call; but if you tuck the T-shirt under your arm while paying for something else and mistakenly head out with it, you are guilty only of absentmindedness.
As long as retailers work very hard to create demand for what they sell, and as long as objects of desire hang and lie in public view, shoplifting will be a problem. As with all other problems that are certain to occur, it is always best to have policies and procedures in place and to make sure that the individuals charged with being the first line of defense—the sales staff—are thoroughly briefed on what to do. It is prudent to have counsel and the security team conduct periodic joint seminars with sales and security personnel. As with everything else in the law, the proverbial ounce of prevention will alleviate the need for the more than typically expensive, when it comes to litigation, pound of cure.
Credit: Alan Behr
Since the announcement of the result of the UK’s referendum about its future with the European Union so far as UK fashion is concerned, there has been no discernible change in the previous pattern of doing business. But the designs of business will change irrespective of what replaces the UK’s existing trade relationship with the EU.
Already there are forecasts of an increase in inflation for fashion and footwear prices. It follows that a supplier which fails to build into its contracts an inflation indexing provision is simply giving its customer an opportunity to make a greater margin on resale!
Correspondingly, UK fashion businesses sourcing clothes, footwear or accessories from overseas which do not include a currency conversion clause in their purchasing contracts are asking for trouble. The immediate fall in GBP on 24 June 2016 has been nowhere reversed.
But on the plus side, buying UK fashion assets – brands or trophy stores – in USD or pretty much any currency (excluding Bank of Toytown) has become a whole lot cheaper.
For those British fashion businesses not falling prey to overseas buyers, uncertainty can be expected to translate itself to an increasing use of pop ups and the taking of concessions in department stores.
And what of legal issues? The UK’s ‘affection’ for lawyers (”The first thing we do, let’s kill all the lawyers,” Henry VI, Part II, act IV, Scene II) is likely to grow. This is because whilst the referendum will not in itself have any immediate implications in legal – terms – it could take years before the UK exits the EU officially – good lawyers who look to try and achieve their clients business objectives will consider what the referendum means.
As such, can it be said that the decision to leave the EU has or will frustrate the purpose of a contract so making it impossible to perform the contract? Possibly. But the English courts have consistently been unimpressed by an argument that a contract is frustrated because it is more expensive to fulfil or more difficult to perform.
But then does the Brexit vote constitute an event of force majeure? Unlikely as it would be necessary either for the contract to expressly state it to be so or for it to be interpreted as falling within a more general force majeure category, such as the act or decision of a government body. However, this has still to be tested in the English courts.
Will English choice of law and English court jurisdiction clauses continue to be upheld in the English courts given that these are currently governed by EU regimes? For the time being – yes. But in the future?
Equally, how will the intellectual property rights of fashion brands fare? The EU trade mark and the EU design, both pan European rights will almost certainly cease to cover the UK and this will result in a need to secure separate rights in the UK. The conversion of existing EU IP rights to national UK rights is likely but on what basis this will be implemented and whether it will involve re-examination of the rights is unclear.
The enforcement of IP rights may also throw up some interesting issues. What happens to a pan European injunction granted in favour of a non-UK company pre-Brexit? Does it automatically cover the UK post-Brexit or will it need to be registered in the UK to continue in place? This has the potential for re-opening a number of hard won disputes by designers and fashion brands alike.
Finally, what about grey imports? The UK could become a haven for parallel imports and worse if any transitional provisions on the protection of EU trade marks leave gaps in protection, the rights could be left unprotected if the fashion brand does not already have a UK trade mark in place.
A few years ago a successful telecoms company – Orange – claimed, “The future’s bright. The future’s Orange.” Today the future is grey as we try and see through an interesting period in the history of the UK.
*The Fashion Law Practice appreciates this guest post from Fox Williams LLP (London, UK).
We have commented here before that the necktie is the surviving element of the male wardrobe that is purely decorative. If it is true that form follows function, there is no prescribed form for an accessory that, by definition, is completely without function. For that reason, you can make it a classic neck to waist cravat, go for a Pharrell bowtie, or go for a turquoise-clasped bolo — at least if you are from the West.
Cloth ties can come in any width, as long as you can close them and they do not rub into your face or flap into your arms. When I was young, my father was friends with George Goldman, a legendary New York necktie manufacturing impressario, back when most ties sold in the USA were made there. I remember when my father came home from a meeting with George, bearing a fistful of thin neckties –only to note, not long after, that they had slipped out of fashion. The Mad Men age was over, taking with it the thin tie and long-accepted business terms such as “career girl” and “make it a double.”
Ties next grew wide, to the point of obesity, during the following decade. And then, thanks to the temperate good taste of designers such as Giorgio Armani and Ralph Lauren, ties went to the gym and trimmed down. And then, wouldn’t you know it: the thin tie, now known by its workout-sanctioned name of the skinny tie, returned, along with thin lapels.
Because it has become tough to say what is “correct” in business wear of late, those of us who pay attention to these things keep two tie collections, one in the moderate ninety-centimeter width of the classic Kiton seven-fold and the other in the anorexic sixty centimeter width of the just-discontinued Brooks Brothers Black Fleece line designed by Thom Browne. And to think: all that fuss over something that most men working in offices and classrooms do not even make part of their daily wardrobes anymore.
This rolling in and out of necktie widths throughout the decades illustrates another key element of fashion law: it is of no matter if you were the first to bring back the skinny tie or even if you found a way to make them from thermal-insulated cloth for inclement winter days. You will not get intellectual property protection for the shape and other physical characteristics of any tie in any form that we know at this time that the market will accept. However, it is still possible to obtain protection on the pattern of the tie fabric, if it is truly unique. Considering the way that trends go and come and that, in the 1970s, chunky ties appeared with elaborate printed scenes to fill out their broad canvases, if your vision is of a complete Tahitian village or perhaps of a new interpretation of the Judgment of Paris, your day may soon be here. And if your designs are truly unique, you can register your copyrights. Those neckties will not have any more use than the ones you see today, but their designs will be exclusively yours.
Credit: Alan Behr
In the service of consumer awareness, I have helped clients with event promotions ranging from setting up rub-down booths for aching feet at half marathons to participating in the closing off of Times Square for New Year’s Eve and the engagement of major talent to entertain the revelers. I was particularly amused, however, when Henry Poole & Co, the tailor shop that founded London’s Savile Row (back in 1846), alerted me to the closure of the Row for its one-day transformation into a pasture eighty meters long, populated by sixty squishy sheep and twenty-five anything-but-squishy male models, each of the latter in a bespoke outfit by one of the twenty-five participating tailors. For Savile Row Sheep Day (yes, big promotions need big names) on October 5 of this year, Henry Poole showed, on one of those big men, a made-for-the occasion three-piece suit made of a blue-gray 11-12 ounce Prince of Wales wool and cashmere blend. The sheep came as they were.
That is not the first time Savile Row has been disrupted for a special promotional event. As documented in the film Let It Be, on January 30, 1969, The Beatles gave their last public performance from the headquarters of their company at 3 Savile Row, creating a commotion that brought in the police and became part of the history of popular music.
Getting the famously phlegmatic London bobbies stirred up for the benefit of posterity was likely integral to the thinking behind The Beatles’ rooftop concert, but when fashion companies do big promotions—whether to let Shaun the Sheep and friends graze on a city street or to rent historic venues for fashion shows—they do not want legal troubles. Along with all the usual contractual complexities with vendors, models, transportation providers, venues and more, for big promotions, there typically are municipal permits, special insurance problems (Just what is the premium for coverage against damage by rampaging ruminants?), and often import/export and duty considerations, to name only a few of the additional legal concerns.
Big events are often borne of creativity at marketing and public relations companies and departments; but it is a good idea to bring in the lawyers well before a fashion company commits to move forward with such an event. Marketers are both inventive and parental, quickly falling in love with their creations, with the result that legal considerations can be put off to the last minute. That is why promotional lawyers are used to providing services in a rush. Under those conditions, even their best efforts may not be enough to prevent an exciting opportunity from becoming an expensive mistake due to missed deadlines for permits, hurried and failed attempts at gaining necessary consents and much more (and much worse). The simple rule of thumb is this: when you think big in a promotion, think legal. Before the big idea is a go, go to the lawyers and ask if it is possible and what it likely will cost to make it happen.
As for those sheep on Savile Row: someone did it all just right that day in October. The promotion went off as planned, the cops stayed away, everyone had a good time, and Henry Poole and the rest of the Row’s tailors got their message across, which was, “Gentlemen: wear wool and look smart.” We have to assume that, somewhere in London that night, an advertising and promotions lawyer slept soundly. He or she certainly deserved to.
Credit: Alan Behr
Photo Credit: Henry Poole & Co
The bankruptcy and attempted reorganization of American Apparel demonstrate not just that fashion is a risky business but also that, in bad times as well as good, it brings into play some unique considerations. First among those is that fashion businesses tend to arise from the unique vision of one or a very few individuals. That is true as well for tech startups, but except for a few software geniuses (such as Mark Zuckerberg), entrepreneurial masters (such as Bill Gates) and brilliant marketers (such as Steve Jobs), once a tech business gets going, skilled replacements are relatively easy to find.
That is not the case when the founder and guiding light of a fashion business is also its chief designer. As even well-established brands have demonstrated, bringing in a new designer who understands a brand’s signature looks and who can add his or her own vision while somehow keeping all that fresh (and keeping loyal customers purchasing) is not an easy feat.
The situation at American Apparel was ironically even more complicated because much of the trouble started when its founder, Dov Charney, was forcibly removed. More of a businessman than the creator of a signature style (American Apparel was all about ever-cool basics made in the USA), he dominated the company. He made a failed effort to return; and while everyone involved focused attention on that, the business lost its vision and too many of its customers, and then slid into receivership. That might have happened anyway, but the disruptions caused by the long-running Charney episode may well have been the tipping point.
It all serves as a reminder that, in fashion, getting a clear and effective legal structure into place as early as possible, with understandable methods and procedures for personnel transitions and successions, could potentially be a business-saver. True, Ralph Lauren, that grand warrior for American gentlemanly style, simply and graciously stepped aside as CEO of his company, letting the business keep running, apparently seamlessly, from there. But legal planning is not about expecting the best; it is, unfortunately, about hoping for the best while planning for the worst. And when it comes to fashion and the people in fashion, that is nearly always a prudent way to go.
Credit: Alan Behr
In most cases, a new store tenant will require work to be done to make the premises suitable for its purposes. As a rule, a landlord will insist that no work can be done without prior approval. That puts the prospective tenant on the horns of a dilemma while negotiating a lease: if an architect is hired to design the plans while negotiations on the lease are ongoing and the lease is not ultimately signed, time and money invested in the premises will be lost. If the plans are not prepared, however, the opening of the store may be delayed as the landlord goes through the approval process, or worse, the landlord forces the tenant to change the plans. The result: the tenant may not get the store it wants on the date the tenant needs it.
Whether or not to advance the money for plans is always an individual consideration, depending on the relationship with the landlord and the time pressure to open the store.
Even if the tenant prepares the plans and the landlord approves, there is still the issue of getting the approval of the local authorities. Estimating the time that it will take to get approvals is crucial in calculating when the store will open. Without that information, planning for seasonal inventory can be thrown off, with potentially serious business consequences. Ideally, a tenant would have a contingency in every lease for cancellation if the plans are not approved by the authorities. However, it can be difficult to get landlords to agree to that in good measure because of an inability to predict what plans the prospective tenant will submit and what the official reaction to them will be.
However, if the plans are already completed and approved, the municipal authority will likely have someone who would be willing to meet with the tenant’s architect to give an indication of whether there will be problems and to provide an estimate of how long the approval process might take. In some cases, the government representative would also be able to alert the tenant as to any existing problems in the building, especially if the landlord has not been cooperative. It is, therefore, often a good idea to pay a visit to the local building department once plans are completed and approved.
Credit: Steven J. Rabinowitz
Steve is counsel in Phillips Nizer’s Real Estate Law practice.