Legal Protection Against Personal Liability on Commercial Leases During COVID-19

On May 26, 2020, New York City Mayor Bill de Blasio signed into law a bill that temporarily amends the New York City Administrative Code to provide additional protections for commercial tenants, particularly restaurants, affected by COVID-19. Several of these amendments pertain to the enforceability of personal liability for guarantors of commercial leases and are discussed herein.

The new laws temporarily modify parts of the NYC Administrative Code, particularly NYC Administrative Code §22-902 and 903. NYC Administrative Code §22-902 enumerates thirteen acts and omissions, any of which, if taken by or on behalf of a landlord, constitute commercial tenant harassment if they would reasonably cause the tenant to vacate the commercial property or “surrender or waive” any rights under a lease or rental agreement. The new legislation amends this act in two ways. First, Intro. No. 1932-A adds, as a fourteenth prohibited act, the attempt to enforce a personal liability provision that the landlord knows or reasonably should know is not enforceable because the tenant is a commercial tenant affected by COVID with a personal guaranty. Second, Intro. No. 1914-A amends one of the original thirteen prohibited items to include threatening a commercial tenant based on the tenant’s status as a person or business impacted by COVID-19 “or the commercial tenant’s receipt of a rent concession or forbearance for any rent owed during the COVID-19 period.” This period starts on March 7, 2020 and ends the later of September 30, 2020 or the end of the first month that commences after the expiration of the 90 day moratorium on the enforcement of tenant evictions set forth in EO 202.8 (and extended by EO 202.28), with a caveat for federal timelines.

A business is “impacted by COVID-19 if (i) it was subject to seating, occupancy, or on-premises service limitations pursuant to an executive order issued by the Governor or [Mayor De Blasio] during the COVID-19 period or (ii) its revenues during any three-month period within the COVID-19 period were less than 50 percent of its revenues for the same three-month period in 2019 or less than 50 percent of its aggregate revenues for the months of December 2019, January 2020, and February 2020 and such revenue loss was the direct result of the COVID-19 state disaster emergency. A revenue loss shall be deemed to be the direct result of the COVID-19 state disaster emergency when such disaster emergency was the proximate cause of such revenue loss.”

A tenant can bring a claim for this kind of harassment under NYC Administrative Code §22-903 and seek a civil penalty between $10,000 and $50,000. The legislation has no bearing on a tenant’s obligation to pay rent, however, and if the court finds that the tenant did owe rent during the pandemic (even if the harassment occurred), it will reduce the penalty by the amount of rent owed. Notably, NYC Administrative Code §22-903(a)(3) does allow the tenant to seek attorney’s fees and costs.

While these protections are temporary, they provide additional support for New Yorkers during a time of unprecedented financial insecurity. As new measures continue to unfold, our office will update the foregoing list of new legal protections for small businesses and tenants in New York City. As always, we advise you to speak to an attorney if you have questions about how this new legislation as well as any COVID-19 related development impacts your business.