“Operate Its Business” Means What It Says: Pandemic Shutdown Orders Can Trigger a Lease “Taking” Even Where Some Use Continues

A. Precedents Cited

1) Standards of review and summary judgment framing

• Windward Bora, LLC v. Wilmington Sav. Fund Soc'y, FSB: cited for de novo review of summary judgment. This positioned the panel to independently assess both the contract’s meaning and whether the record compelled judgment for either side.
• Galloway v. County of Nassau and Alberty v. Hunter: cited for the Rule 56 standard and the obligation to construe evidence in favor of the non-movant. Their function here was doctrinal, reinforcing that contract interpretation can be resolved at summary judgment when the text is unambiguous and facts are undisputed.

2) Contract interpretation principles under New York law

• L. Debenture Tr. Co. of N.Y. v. Maverick Tube Corp.: used to emphasize that the “best evidence” of intent is the written text, supporting the court’s insistence on the clause’s actual disjunctive phrasing (“and/or”) rather than a judicially imposed “total loss of use” requirement.
• Lockheed Martin Corp. v. Retail Holdings, N.V.: cited for the “fundamental objective” of giving effect to expressed intent—driving the court’s focus on preserving each operative phrase in the “taking” definition.
• Eternity Glob. Master Fund Ltd. v. Morgan Guar. Tr. Co. of N.Y.: cited for enforcing unambiguous terms according to their plain meaning, which the court applied to read “operate its business” as an independent trigger.

3) Avoiding surplusage; interpreting pandemic-era clauses

• JN Contemp. Art LLC v. Phillips Auctioneers LLC: invoked for the anti-surplusage principle—avoid interpretations that render a clause meaningless. This was central: the district court’s “no taking unless no use/occupancy” approach would nullify the phrase “and/or the ability to operate its business.”
• 195 B Owner LLC v. Anthropologie, Inc.: a New York Appellate Division decision directly supporting the proposition that a taking can occur when the tenant cannot “operate its business” even if other forms of “use” persist. The Second Circuit treated it as persuasive authority on New York law and harmonized its own reading with that state precedent.

4) Rejecting “absurd” contractual constructions

• Macy's Inc. v. Martha Stewart Living Omnimedia, Inc.: relied on for the rule that contracts should not be interpreted to produce absurd or commercially unreasonable results. This underpinned the holding that a notice-and-cure clause for landlord nonperformance cannot sensibly apply to the landlord’s election of termination as a remedy.

5) Unjust enrichment and contract preclusion

• Mandarin Trading Ltd. v. Wildenstein: supplied the elements of unjust enrichment under New York law, framing Free People’s attempt to recover mistaken payments.
• Goldberg v. Pace Univ., Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., and Corsello v. Verizon N.Y., Inc.: cited for the general bar on quasi-contract claims where a valid contract governs the subject matter and for the prohibition on using unjust enrichment to duplicate contract claims. The panel distinguished these cases by highlighting the absence of an identified lease provision governing reimbursement of inadvertent overpayments under the circumstances found on appeal.

6) Remand practice

• New York ex rel. James v. Niagara-Wheatfield Cent. Sch. Dist.: cited to justify remanding unbriefed or unaddressed issues (here, whether factual disputes preclude summary judgment on unjust enrichment), reflecting the court’s preference for district-court first-instance resolution.

B. Legal Reasoning

1) The new interpretive rule: “operate its business” is an independent trigger

The opinion’s core move is textual and structural. The lease defined a “taking” to include scenarios where the tenant is denied or deprived of: (i) “use, occupancy and/or enjoyment” and/or (ii) “the ability to operate its business thereon or therefrom.” The Second Circuit read this as a disjunctive, additive definition: a tenant need not lose all physical “use” to be deprived of the ability to “operate its business.”

The district court’s approach—requiring deprivation of all use or occupancy—collapsed the clause into a single physical-access test and violated anti-surplusage principles. The Second Circuit’s construction restores the parties’ apparent allocation of risk: government action that shuts down the tenant’s business operations can trigger rent relief even if some residual uses (storage, limited access) remain possible.

2) “Permitted Uses” does not redefine the tenant’s “business”

Delshah argued that because the “Permitted Uses” clause allowed “Any general retail use,” any continued retail-adjacent activity (inventory storage, fulfillment of online orders, signage) meant Free People could still “operate its business.” The court rejected this as a category mistake: “Permitted Uses” is a landlord-protection provision defining what uses do not breach the lease; it is not a definitional clause converting the tenant’s real-world enterprise into an abstract set of allowable activities.

The court reinforced this conclusion by noting the lease’s drafting practice: where the lease intended cross-references, it used them. The takings clause did not cross-reference “Permitted Uses,” indicating the parties did not intend the “business” inquiry to be limited to whatever minimal activities might still fit within broad “general retail” permissions.

3) Application to undisputed facts: brick-and-mortar retail vs. remote-fulfillment operations

The court treated Free People’s business at the premises as “operating a traditional retail clothing store offering in-person sales” (while also fulfilling some online orders). Government orders closed the store to the public until June 22, 2020, and barred any employee access for a discrete period. Although later guidance allowed single-employee access for fulfillment and curbside pickup, the court held that a remote-order fulfillment model is not the same “business” contemplated by a high-traffic retail location lease.

On that reasoning, the court concluded that the takings provision excused rent from March 22 through June 22, 2020, entitling Free People to summary judgment against Delshah’s breach-of-contract claim for nonpayment during that span.

4) Notice-and-cure does not bar a wrongful-termination theory

The notice-and-cure clause treated landlord “nonperformance” of “obligations” as a “default” curable within 30 days. The Second Circuit held that termination is not “nonperformance”; it is the exercise of a contractual remedy. Applying the clause to termination would require the tenant to give the landlord “notice” that the landlord terminated (already known) and would permit the tenant to “cure” the landlord’s termination “on behalf of Landlord,” which the court deemed nonsensical and commercially unreasonable.

Having found the rent was excused, the court then held that Delshah’s termination for nonpayment was improper, entitling Free People to summary judgment on its breach-of-contract counterclaim (as framed on appeal).

5) Unjust enrichment survives the “duplicative” objection—at least at the pleading/summary-judgment stage addressed

The panel vacated the dismissal of unjust enrichment regarding two mistaken post-vacatur payments. The district court’s duplicative analysis hinged on lease section 22(c) (liquidated damages upon termination following tenant default) and the assumption that Free People defaulted. Because the Second Circuit reversed that predicate assumption, the unjust-enrichment ruling could not stand.

More importantly, the court emphasized that neither Delshah nor the district court identified a lease term governing reimbursement of “overpayments” mistakenly made after the lease had been (wrongfully) terminated. The panel framed mistaken payment as a classic restitution scenario, suggesting the unjust-enrichment claim may address a gap not covered by the lease’s remedial scheme. It remanded, however, for the district court to address any factual disputes and related issues in the first instance.

C. Impact

• Drafting and litigation of “taking” clauses: The decision strengthens tenants’ ability to invoke clauses that expressly protect the “ability to operate its business,” even where limited access, storage, or ancillary activities remain possible. Landlords seeking to avoid this result may draft tighter definitions tying “business operation” to “Permitted Uses,” specifying that partial operations (e.g., fulfillment, curbside pickup) negate rent abatement, or defining “taking” to require complete physical exclusion.
• Business-reality approach: The court’s emphasis on the tenant’s “actual business” (brick-and-mortar retail experience) may influence future disputes where premises are usable for some revenue-generating activities but not the tenant’s primary on-site model (e.g., gyms, theaters, dine-in restaurants).
• Notice-and-cure clauses: The holding narrows the ability to deploy notice-and-cure provisions as procedural barriers against wrongful-termination claims when the challenged act is an election of remedies rather than failure to perform an obligation.
• Restitution alongside contract: The remand on unjust enrichment signals that New York’s “contract preclusion” rule is not absolute; where the contract does not address the specific subject (here, return of mistaken overpayments post-termination under the posture found), restitution theories may proceed.
• COVID-era commercial lease disputes: Although tied to pandemic facts, the interpretive principle is not pandemic-limited: any government action or disaster that forecloses core business operation may trigger similar clauses.