Commercial Lease Guarantors: Newly Enacted Section of NYC Administrative Code May Provide You With Relief

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As the COVID-19 (Coronavirus) pandemic continues to have devastating effects on our nation’s economy, particularly for small businesses and restaurants struggling to make ends meet and stay afloat, relief has become available for certain personal guarantors of NYC commercial leases.  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 liability provisions in commercial leases involving COVID-19 impacted tenants.

Pursuant to Section 22-1005, a personal liability provision in a commercial lease providing for one or more individuals who are not the tenant under the lease to be wholly or partially personally liable for payment of rent, utility expenses, taxes owed, or fees and charges related to routine building maintenance, upon the occurrence of a default or other event under the agreement, shall not be enforceable against such individuals if the following two conditions are satisfied:

(1) The 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 number 202.3 (closed all on-premises activities 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 under guidance issued by the New York state department of economic development pursuant to executive order number 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 under executive order number 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 default or other event causing such individuals to become wholly or partially personally liable for such obligation occurred between March 7, 2020 and September 30, 2020, inclusive.[1]

Accordingly, the passage of this new section of the NYC Administrative Code allows individuals who are guarantors for COVID-19 impacted businesses including, but not limited to, restaurants and bars, gyms, retail stores, and barbershops to breathe a sigh of relief, at least for now,[2] during these uncertain times.

[1] We have not as of yet seen any guidance addressing whether a default existing before March 7, 2020 and continuing thereafter would satisfy the condition set forth in this paragraph.

[2] Constitutional challenges to Section 22-1005 are likely to arise, particularly concerning whether such an exercise of the State’s police power is reasonable and appropriate.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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