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Federal Court Upholds New York City Landlord Bar from Enforcing Personal Guaranty

On November 25, 2020, U.S. District Court Judge Ronnie Abrams ruled that the COVID-19 tenant relief package does not violate landlord rights.

In May 2020, New York City enacted three laws to protect commercial and residential tenants during the pandemic. As reported here, Local Law No. 55-2020, entitled “Personal Liability Provisions in Commercial Leases”, bars commercial landlords from enforcing a personal guaranty to pay the rent, utilities or taxes of  certain businesses forced to close due to the pandemic (the “Guaranty Law”). The Guaranty Law applies only if the guarantor is a natural person other than the tenant. The businesses covered include restaurants, gyms, hair salons, barber shops, movie theatres and personal care centers (such as nail salons), and the relief period is March 2020 through March 2021(as extended). Notably, the Guaranty Law is intended to be permanent: it prohibits a landlord from collecting rent for any default that occurred during the covered period, even after the pandemic ends.

The District Court for the Southern District of New York rejected the landlord’s argument that laws were an unconstitutional interference with private contracts and granted the City Council’s motion to dismiss. However, the Court’s decision leaves the door open appeal. Specifically, Judge Abrams, held that:

“Plaintiffs have expressed some legitimate concerns, and the Court recognizes the toll the pandemic has taken on them, in addition to their tenants, all New Yorkers, and millions more around the world….Nonetheless…the Court cannot conclude that these three challenged laws violate any of Plaintiffs’ constitutional rights.”

The other two laws included in the City’s relief package, the “Residential Harassment Law” and the “Commercial Harassment Law,” prohibit landlords from threatening and harassing commercial or residential tenants affected by the COVID-19 pandemic.

We will continue to monitor this case and the Guaranty Law for further updates. If you have any questions, please reach out to the author of this article, Lauren Topelsohn, or the attorney with whom you normally work with at Mandelbaum Salsburg.

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