During the COVID-19 pandemic, among other things, New York City passed an Ordinance prohibiting the enforcement of personal guaranties in commercial leases for specific restaurants and retail stores. Generally, this has become known as the NYC Guaranty Law. With many NYC commercial restaurant and retail store leases, a landlord will require that the business owners personally guarantee the obligations outlined in the lease, particularly for paying rent and other charges. If the primary leaseholder defaults, then the landlord can seek to recover compensation from the guarantor(s).
The NYC COVID-19 Guaranty Law prohibited enforcement of such guarantee provisions/agreements for about 13 months – March 7, 2020, through June 21, 2021 – concerning a limited range of businesses.
What Has Been Happening With the Guaranty Law?
Looking at some of the cases decided by New York courts and media reports, the general takeaway is that the courts strictly and narrowly construe the Guaranty Law. For example, as noted, the Guaranty Law only applies to certain types of businesses, such as those ordered to stop serving food/beverages to be consumed on-site or to cease operations entirely under New York’s Executive Order 202 issued by Governor Cuomo during the pandemic. Thus, in the most recently reported case — Mozzy, Inc. v. SK Ironstate, LLC, 2022 N.Y. Slip Op 32865 (N.Y. Supreme Court August 23, 2022) — the New York judge ruled that the Guaranty Law did NOT apply because that business was not among those listed in the Guaranty Law. The sublease involved premises being used and occupied for the “sole purpose of executive and general office use.” That was not a type of business protected by the Guaranty Law.
As another example, in the case of 360 W. 55th Street, L.P. v. PBQ LLC, 2022 N.Y. Slip Op 32869 (N.Y. Supreme Court, August 22, 2022), the judge also held that the Guaranty Law did NOT apply because the default that triggered the personal guaranty obligations did not occur during the relevant period — between March 7, 2020, and June 30, 2021. The court ruled that the text of the Guaranty Law limits its application to circumstances where the event or events causing the lease default occurred during that period. In the PBQ case, the restaurant operating at the leased location failed to make the required rent payments starting and continuing after September 2018. So, the court held that the Guaranty Law did not apply.
These cases are consistent with earlier judicial decisions — like 45-47-49 Eighth Avenue LLC. v. Conti, 2021 N.Y. Slip. Op. 50691 (N.Y. Supreme Court, July 23, 2021) — which have construed the Guaranty Law strictly and narrowly. In the 45-47-49 Eighth Avenue case, the court held that the text of the law only barred attempts to enforce personal guarantees for rent, utilities, taxes, and CAM. However, the Guaranty Law did not bar enforcement of a guarantee agreement for other payment obligations, such as water charges and repayment of a brokerage commission.
Several cases raised constitutional challenges to the Guaranty Law. They argued that the Guaranty Law is an unlawful impairment of the obligations of contracts. These cases are currently working their way through the appellate process.
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