NYC Extends Moratorium on Enforcement of Personal Guarantees of Commercial Leases Affected by COVID-19

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[co-author: Christopher Williams, Law Clerk]

On Sept. 23, 2020, the New York City Council amended the personal guarantor provisions of Local Law 55 of 2020, which went into effect on May 28, 2020 and was designed to protect businesses affected by Gov. Andrew Cuomo’s COVID-19 emergency executive orders. The amendment, which became effective on Sept. 28, 2020, contains two minor but important modifications to the guarantor protection portion of Local Law 55:

  • First, the amendment clarifies the intent of the law by stating that it applies to all personal guarantor agreements, regardless of whether those agreements were contained in the original lease.
  • Second, it extends those guarantor provisions through March 31, 2021.

In addition to modifying the content of Local Law 55 of 2020, the amendment’s enabling legislation provides further insight into the New York City Council’s intended purpose of the guarantor protections. It explicitly states that these provisions were not intended by the Council to limit any other legal remedies that a landlord may pursue, such as bringing suit for damages or satisfying obligations with tenant assets such as inventory, equipment, or accounts receivable. It also states that these protections are temporary measures designed to prevent individuals from facing further financial hardship.

Although the courts have yet to rule on the constitutionality of Local Law 55, the reference to the temporary nature of the provisions as well as the U.S. Constitution’s ban on state impairment of contracts suggests that the law is intended to be a temporary hold on enforcement of qualified guarantor agreements rather than a permanent forgiveness of obligations.

As a reminder, under Local Law 55 of 2020, qualified guarantors include natural persons, not corporate or limited liability companies, who have guaranteed the obligations of a commercial tenant who:

  • was required to cease operations per Gov.Cuomo’s Executive Order 202.3 (applies to restaurants, bars, gyms, casinos and movie theaters, effective March 16, 2020); or
  • is a non-essential retail establishment per Executive Order 202.6; or closed to the public per Executive Order 202.7, (applying to barbershops, hair salons, tattoo or piercing parlors and related personal care services including nail technicians, cosmetologists and estheticians and the provision of electrolysis, laser hair removal services.

Harris Beach Law Clerk Christopher R. Williams contributed to this legal alert.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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