A New York City law making personal guaranties in commercial leases unenforceable may be amended to provide additional protection to small business owners.
On May 26, 2020, Mayor Bill de Blasio signed Local Law 1932-A (N.Y.C. Admin. Code § 22-1005), which provides significant protection to individuals who may be personally liable under commercial leases of businesses impacted by the COVID-19 crisis. We have previously reported which tenants may qualify for such relief, the extent to which non-tenant “guarantors” of such leases are protected, whether personal liability might be simply suspended or extinguished entirely, and about potential limitations of the legislation. The law is clear that its relief is limited to defaults which occurred between March 7, 2020 and September 30, 2020.
With the September 30 date approaching, many small business owners are understandably concerned that the law’s protections could come to an end while the economic effects of the pandemic continue. To alleviate that concern, on September 16, 2020 the City Council introduced an amendment to the law (Int. 2083-2020), which would extend the end date of the lease default period from September 30, 2020 to March 31, 2021.
The extension proposal serves only to extend the time period within which a default must occur to trigger the statute’s protection. It does not add any language that would clarify the issues raised in our previous blog, such as whether a landlord is temporarily or permanently prohibited from enforcing the personal liability provision of the lease, whether the personal guaranty may appear in a document outside the commercial lease itself, or whether the City has the authority to impede the parties’ constitutional right to enter into lawful contracts. Absent such clarification from an amendment, we will have to await the courts’ interpretation on such matters, as landlords have already begun and likely will continue to pursue litigation concerning the statute’s reach.
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