Commercial Landlord-Tenant Law Update

By Joshua D. Sussman, Esq.
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Although New York is about to lift COVID-19 related restrictions, the commercial eviction moratorium was extended through August 31, 2021. The COVID-19 commercial eviction moratorium began on March 7, 2020 when Governor Cuomo issued Executive Order 202.28, which was extended and modified by subsequent Executive Orders, and then was further extended through August 31, 2021 by the COVID-19 Protect Our Small Businesses Act (“Act”).

The Act precludes evicting certain small businesses, including those with less than fifty employees, before August 31, 2021, if a commercial tenant submits a hardship declaration stating, under the penalties of perjury, that it: (a) has suffered a significant loss of revenue during the pandemic; (b) has suffered a significant increase in necessary expenses related to providing personal protective equipment to employees or purchasing and installing other protective equipment to prevent the transmission of COVID-19 within the business; or (c) would suffer hardship to move to a new location. A tenant has ample opportunities while the Act is in effect to submit a hardship declaration to stay its eviction until August 31, 2021 (or thereafter if the Act is further extended). Even after a warrant of eviction has been issued by a Court, a tenant can stay its eviction through August 31, 2021 by delivering a hardship direction to the officer or other person to whom the warrant of eviction or execution is directed by the Court. 

 The Act provides an exception to the commercial eviction moratorium when a landlord establishes, and the Court finds, a “tenant is persistently and unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others”, notwithstanding the tenant’s purported financial hardship. 

Notwithstanding the eviction moratorium, commercial tenants remain liable under their leases. Many New York Courts have rejected tenants’ defenses of “impossibility of performance” and “frustration of purpose” based upon pandemic-related fact patterns. In short, the tenants argued their rent obligations should be excused due to government-ordered shutdowns and pandemic induced financial hardship. One Court reasoned that these narrow common law doctrines “refer to a broader inability to perform under the contract such as leasing a building that burns down before the lease begins. A temporary hardship, like the [pandemic], would vastly expand the reach of these doctrines if it could excuse a tenant’s obligation to pay the rent.” Bay Plaza Community Ctr. v. Bronx Vistasite Eyecare, Inc. 2021 NY Slip Op 31568(U) (May 5, 2021).  The Appellate Courts have not yet weighed in.

In some instances, defendants have been successfully established a defense to their non-performance under a contract (a lease or otherwise) based upon a force majeure clause. The Southern District of New York found an auctioneer properly terminated an agreement because a force majeure clause permitted terminating the agreement in the event of natural disaster. The Court determined that the COVID-19 pandemic qualified as a natural disaster. See JN Contemporary Art LLC v. Phillips Auctioneers LLC, 2020 WL 7405262 (S.D.N.Y. Dec. 16, 2020). Whether tenants have a defense based upon a force majeure clause will require a case-by-case lease analysis.

Certain guarantors of New York City commercial leases have been protected. The New York City Council passed Local Law No. 55-2020 (known as the “Guaranty Law”) to protect commercial lease guarantors by preventing landlords from enforcing personal guarantees of commercial leases to collect rents, taxes, utilities and certain other debts due from March 7, 2020 through March 31, 2021, if the tenant’s business qualified due to certain New York State mandated closures or in-person limitations.

The Guaranty Law has been found constitutional. The most prominent Court to do so was the United States District Court for the Southern District of New York in Melendez v. City of New York. The District Court held the Guaranty Law does not violate the U.S. Constitution’s Contract’s Clause (Art. 1, § 10) despite substantially impairing enforcement of the subject personal guarantees because the law advances a legitimate public interest (protecting small businesses and the City economy as a whole), is reasonable (sufficiently limited to achieve the stated purpose), and necessary (due to the pandemic).  The appeal of Melendez is pending in the United States Court of Appeals for the Second Circuit. 

In addition to the litigation issues discussed, the foregoing raises interesting questions about how commercial leases may be structured in the future to protect landlords’ and tenants’ interests. 

Should you have any questions regarding commercial landlord-tenant litigation during the pandemic, what claims or defenses you may have under your current lease, or negotiating your next lease, please contact Joshua Sussman at 516-287-8035 or jsussman@weisszarett.com.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate litigation and transactions.

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