As of July 6, New York City began Phase 3 of COVID-19 reopening. Two weeks later, on July 20, New York City entered a modified Phase 4 COVID-19 reopening. For city dwellers who endured approximately 82 days of stay-at-home orders and the additional 29 days of limited openings in Phase 1 and 2, Phase 4 seems like a significant step toward returning to a pre-coronavirus lifestyle. We are all wearing masks in public, restaurants and bars are open for outdoor dining, retail stores are open with social distancing limits and offices, churches mosques and synagogues are open with capacity and social distancing requirements. Still not open are theaters, sporting events and indoor dining. Gatherings of more than 50 people are still prohibited.
The 111 days of limited access to brick-and-mortar retail stores have expedited the trend to online shopping. That trend has led to brick-and-mortar bankruptcies. Since New York City went into stay-at-home orders on or about March 17, retail chains including Dean & DeLuca, J. Crew, Gold’s Gym, Neiman Marcus, JCPenney, Pier 1, GNC, Brooks Brothers, Sur La Table and Lucky Brand have filed for bankruptcy. There have been more failures in closely-held businesses that operate small retail establishments.
For cooperative and condominium buildings with retail units, this is less than good news. Not only do vacant stores attract vandals, but they also do not pay maintenance, leaving buildings that own these units with carrying costs and no income. Moreover, retail tenants in bankruptcy may also refuse to vacate the space to allow it to be re-leased. In such cases, where the rent is not being paid by a bankrupt tenant who is occupying the premises, the landlord must petition the bankruptcy judge to lift the stay and give the landlord leave to proceed with a commercial eviction in the New York City Civil Court Commercial part.
The issue for cooperative and condominium buildings with retail units is to work to select retail tenants that are likely to survive and thrive in competition with online shopping. Consumers still seem to want to see and touch products before purchasing. Additionally, customization and service appear important to consumers. This may favor high-end stores that semi- or fully-customize products. To reduce costs, stores may be smaller and carry only samples for consumer inspection. The product would ship to consumers from fulfillment centers.
Clothing, shoes, tissues and cleaning products (to name a few) are available online for drop shipment to customers’ homes and offices. As a result, retail outlets that provide common household items, toys and other commodities may be in trouble.
If a retail establishment is located in a cooperative or condominium building, management should obtain a copy of the business’ reopening plan and ensure that all New York City and State health and safety mandates are being followed. For example, retail establishments need to maintain social distancing, which is six feet between (and among) customers and staff. While coronavirus is benign for most victims, approximately 1.4% die. By comparison, influenza’s mortality rate is less than 0.5%.
As we reopen, one major unknown is the potential for tort liability when there are cases of COVID-19. Building management should take proactive steps to make a record of directing retail and commercial tenants to follow applicable State Executive Orders, regulations and mandates as well as New York City rules and regulations. Management should consider distributing government notices on reopening, disinfecting, social distancing, testing and COVID-19 symptoms and maintaining a record of all COVID-19-related documents provided to tenants.
This column presents a general discussion. This column is not intended to provide legal advice. Please consult your attorney for specific legal advice.
Carol A. Sigmond
Porzio, Bromberg & Newman P.C.
156 West 56th Street, Suite 803
New York, NY 10019