Manhattan retail availability across key shopping districts held at 13.7% in the first quarter of 2026, the lowest level since JLL began tracking it in 2017, with prime asking rents at $585 per square foot.[1] The corridors are full again. The litigation from the quarter they emptied is not finished: in May, the Second Circuit decided who owed rent on a Meatpacking District storefront during the spring of 2020, and reversed a judgment of $6,707,916.84 against the tenant.[2]
A takings clause that excuses rent when the tenant is deprived of “the ability to operate its business” does work that a use-and-occupancy clause does not. A tenant that still holds the space, stores goods in it, and ships online orders out of it can be deprived of the business it actually ran there, and a court that treats continued possession as the end of the inquiry reads the operating language out of the lease.
The clause listed several ways a public authority can take the benefit of a space. The lease excused rent if a portion of the leased space was taken or condemned, if the tenant was denied access or egress “by any action or decree of any lawful power or authority or as a result of natural or other disaster,” or if the tenant was “denied or deprived of either the use, occupancy and/or enjoyment of the Leased Space and/or the ability to operate its business thereon or therefrom” by such action or decree.[2]
New York’s March 2020 orders closed in-person retail, and the tenant stopped paying. Free People, the Urban Outfitters brand, ran a clothing store at the premises. Delshah 60 Ninth, the landlord, terminated the lease and sued for unpaid rent in July 2020, seeking roughly $11 million. The tenant counterclaimed for wrongful termination and for the return of payments made after termination.[2][3]
The district court held that storage and shipping counted as use. Free People kept merchandise on the premises, filled remote orders from that inventory, left signage up outside the store, and later offered curbside pickup before in-person retail resumed. On that record the Southern District of New York granted summary judgment to the landlord, reasoning that the tenant had not been deprived of use or occupancy.[2]
The Second Circuit reversed, and the reasoning is a drafting lesson. The panel held that treating continued possession as dispositive “improperly render[ed] the alternate phrase ‘operate its business’ meaningless,” that nothing in the permitted-use provision defined the tenant’s business for takings purposes, and that “[a]n operation limited to fulfilling remote orders is not the ‘business’ that Free People had previously operated on the premises.” Rent was excused from March 22 to June 22, 2020, and the tenant won summary judgment on its counterclaim.[2]
This is a better tenant argument than force majeure, and a worse landlord clause than it looks. Pandemic-era force majeure defenses mostly failed because those clauses excuse performance other than the payment of money, or say nothing about rent at all. A takings clause is different: it is the landlord’s own risk-allocation language, written for condemnation, and when it is drafted in the alternative it reaches any government action that stops the tenant from operating. A landlord who wants shutdown orders excluded has to exclude them, not rely on the tenant still having a key.[2][3]
The lease in the condemnation case where a landlord tried to take the tenant’s goodwill along with the real estate had the same underlying problem, which is that takings language written for one scenario gets applied to another. There, “all awards” was read against the landlord who drafted it. Here, an alternative phrase the landlord probably viewed as belt-and-braces became the operative test for three months of rent on a Manhattan storefront.
Finding the clauses that abate rent on a government order#
Acrebase extracts takings, condemnation, force majeure, casualty, and abatement provisions across a portfolio and shows which leases tie rent relief to possession, which tie it to operation, and which say nothing at all. When a new order, a street closure, or a building-wide shutdown arrives, that inventory tells a team which of its leases already answer the question and which are about to be litigated.
If you are a tenant, read the takings and condemnation provisions before reaching for force majeure, because the language that abates your rent may already be in the lease under a heading you associate with eminent domain. If you are a landlord, decide now whether “ability to operate its business” belongs in your form, and if it does, say plainly which government actions trigger it and which do not.
Footnotes
[1] JLL Manhattan retail research for Q1 2026, reported in World Property Journal — average availability across key shopping districts at 13.7%, the lowest since tracking began in 2017, down from more than 21% in 2019, with average asking rents across prime submarkets at $585 per square foot. https://www.worldpropertyjournal.com/real-estate-news/united-states/new-york-city-real-estate-news/jll-2026-manhattan-retail-report-retail-rents-in-new-york-city-in-2026-retail-space-vacancy-data-for-2026-chelsea-piers-hudson-square-times-square-14720.php
[2] Delshah 60 Ninth, LLC v. Free People of PA LLC, Nos. 25-148 and 25-237 (2d Cir. May 5, 2026) (Leval, Lynch, and Sullivan, Circuit Judges) — reversing a $6,707,916.84 judgment plus interest entered by the Southern District of New York, holding the lease’s takings provision excused rent from March 22 to June 22, 2020, and directing summary judgment for the tenant on its counterclaim. https://caselaw.findlaw.com/court/us-2nd-circuit/118329373.html
[3] The National Law Review, “Taking Sides: How a ‘Takings’ Clause Took Down a Landlord’s Rent Claim” — on the distinction the panel drew between passive use and occupancy and the ability to operate a business, and on why the decision broadens tenant arguments beyond force majeure. https://natlawreview.com/article/taking-sides-how-takings-clause-took-down-landlords-rent-claim
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