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New York City Enacts Law Affecting Enforceability of Certain Commercial Lease Guaranties for COVID-Affected Businesses  

by Linda Herman, Sharon Baldasare, Emilie Cooper, Michael Freyberg

Published: May, 2020

Submission: May, 2020

 



On May 26, 2020, the Mayor of New York City, Bill de Blasio, signed a broad COVID-19 relief package into law, to supplement existing federal and state relief measures. The new legislation included several amendments to the Administrative Code of the City of New York (the “Code”) that affect commercial landlords and tenants, including N.Y.C. Council Int. No. 1932-A (“Local Law 1932-A”).


Criteria for Protection Under Local Law 1932-A


Local Law 1932-A protects individual guarantors of commercial leases from personal liability where the underlying tenant’s business was impacted by specific Executive Orders (“EOs”) issued by Governor Cuomo in connection with the COVID-19 pandemic. It provides that a “provision in a commercial lease or other rental agreement . . . that provides for one or more natural persons who are not the tenant under such agreement to become, upon the occurrence of a default or other event, wholly or partially personally liable for payment of rent . . . shall not be enforceable against such natural persons” if certain conditions are met with respect to (1) the guarantor, (2) the tenant, and (3) the default giving rise to personal liability.


(1) The Guarantor To obtain the benefit of Local Law 1932-A, the guarantor in question must be: (i) a natural person (i.e., not an LLC, partnership, corporation, or other business entity), and (ii) not the tenant under the lease agreement. Because of the typical circumstances in which natural persons provide personal guaranties of commercial leases, as a practical matter, this criteria generally limits Local Law 1932-A’s application to small businesses (where the individual principals thereof often provide a lease guaranty).


(2) The Tenant For a guarantor to obtain the benefit of Local Law 1932-A, the underlying tenant must be one of the following types of businesses:


  • A restaurant or bar that was required to cease serving patrons food or beverages for onpremises consumption pursuant to EO 202.3;
  • A gym, fitness center, movie theater, video lottery facility, or casino gaming facility, that was required to cease operations under EO 202.3;
  • A non-essential retail establishment subject to in-person limitations under guidance issued by the New York State Department of Economic Development pursuant to EO 202.6; or
  • A barbershop, hair salon, tattoo or piercing parlor, or related personal care service establishment required to close to members of the public under EO 202.7.

Read the full alert here.


 



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