NEWLY ENACTED SECTION OF NYC ADMINISTRATIVE CODE SEEKS TO PROVIDE COMMERCIAL LEASE GUARANTORS WITH RELIEF
On May 26, 2020, Mayor Bill de Blasio signed into law Section 22-1005 of the NYC Administrative Code, which prohibits the enforcement of personal guaranties of New York City commercial leases involving COVID-19 impacted tenants. Significantly, the new law offers no relief to individual proprietors who execute commercial leases in their own names.
Pursuant to Section 22-1005, a personal guaranty of a commercial lease shall not be enforceable against such guarantor(s) if the following two conditions are satisfied:
(1) The commercial tenant satisfies the conditions of subparagraph (a), (b) or (c):
(a) The tenant was required to cease serving patrons food or beverage for on-premises consumption or to cease operation under Executive Order No. 202.3 (closed all on-premises service at restaurants and bars) issued by the Governor on March 16, 2020; or
(b) The tenant was a non-essential retail establishment subject to in-person limitations pursuant to Executive Order No.202.6 (reduced in-person workforce at any work locations by 50%) issued by the Governor on March 18, 2020; or
(c) The tenant was required to close to members of the public pursuant to Executive Order No. 202.7 (closed all barbershops, hair salons, tattoo or piercing parlors and related personal care services) issued by the Governor on March 19, 2020.
(2) The commercial tenant’s default under the lease, which default triggered the guarantor’s liability under the Guaranty of the Lease, occurred between March 7, 2020 and September 30, 2020, inclusive.
Furthermore, Section 22-1005 of the NYC Administrative Code amended §22-902(a) to include within the definition of “commercial tenant harassment” any “attempt to enforce a personal liability provision that the landlord knows or reasonably should know is not enforceable pursuant to section 22-1005 of the code.”
It is expected that this new law will face many challenges by commercial landlords in the City of New York. One very obvious challenge is whether this new law violates the Contracts Clause in the United States Constitution. Art. 1, Sec. 10, Clause 1 of the US Constitution provides that “[n]o State shall…pass any…Law impairing the Obligation of Contracts.”
As all COVID-19 events and legislation are ever evolving on what seems an hourly basis, Daniels Norelli Cecere & Tavel, PC will be monitoring developments closely. If you have a commercial lease in NYC, we can review it and address any questions you may have.