The pandemic has upended the lives of business owners, retailers and landlords alike. However, the latest decisions from officials have given commercial landlords the short end of the stick — and may be cause for legal concerns.
New York state has halted all residential and commercial evictions until August 20. Gov. Cuomo also promised that New Yorkers would not be forced to leave their homes or businesses for being unable to pay rent during COVID-19. In the meantime, landlords will have to find a way to continue operating their properties with severely reduced operating cash.
During this moratorium, the state has also taken steps to ban any late-payment fees and allow renters to use their security deposits as payment (the security deposits would be repaid over time). In the interim, landlords may serve rent demands, but they are not allowed to move forward with eviction proceedings.
Personal Liability Bill
Last week, New York City Mayor, Bill de Blasio, signed the City Council’s Personal Liability Bill, which prohibits commercial landlords from enforcing personal guarantees on defaults that arose between March 7, 2020, and September 30, 2020. This measure provides a shield for businesses to protect their personal assets from landlords.
The suspension applies to businesses that were affected by mandated closures and service limitations in the Governor’s Executive Orders. Specifically, it covers:
- Businesses that were required to stop serving food or beverages on-premises (restaurants and bars)
- Businesses that were required to cease operations altogether (gyms, fitness centers, movie theaters)
- Retail businesses that were required to close and/or subject to in-person restrictions
- Businesses that were required to close to the public (barbershops, hair salons, tattoo or piercing parlors, and related personal care services)
While this new law only applies to a limited category of tenants/businesses, it dramatically limits the rights of commercial landlords, which becomes cause for legal concern. The law also interferes with private contracts and impedes on the contractual rights of landlords.
It’s important to note that personal liability provisions are often not included in the lease agreement themselves, but rather part of separate guaranties that are agreed upon and signed by the tenant.