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CEA Legal | Real Estate: Personal Liability-Related Challenges Faced By Commercial Landlords During the Pandemic

November 09, 2020 |

Recently, Mayor de Blasio signed a new measure into law that bans landlords from attempting or threatening to enforce personal liability clauses in the existing contracts of business owners to whom they have leased their properties. Enacted in May and applied retroactively to the beginning of March, this specific law was set to expire at the end of September. However, as a result of the Mayor’s extension, the law will now apply through March of next year, unless it is successfully challenged.

Extending Commercial Tenant Protections

The law prohibiting the enforcement of personal liability provisions in commercial contracts was motivated primarily by concerns that an increase in the lease default rate (caused by COVID-19 restrictions) would lead commercial landlords to enforce the personal liability provisions in their lease and rental agreements. This in turn, would put the personal assets and properties, including homes and bank accounts of tenants, at risk of being seized to cover the cost of unpaid rent, utility expenses, taxes, and fees related to building maintenance.

Critics of the bills argue that the law represents a significant interference of government in private contracts and also point to the fact that commercial landlords have not received similar help during the pandemic. In fact, the City Council lacks the power to waive the mortgage obligations of landlords and a bill that would have given a tax break to commercial landlords was left unsigned. For these reasons, it appears extremely like that the validity of the law will be subject to some sort of legal challenge, including on the basis that the measure is an unconstitutional attempt by the city government to unilaterally modify private contracts.

The Scope of the Law

Under the terms of the new law, business owners who are forced to temporarily close their doors as a result of pandemic-related restrictions can do so without fear of being held personally liable by their landlords for a failure to pay rent. The law does not, however, cover all businesses in the city, but applies primarily to businesses that were impacted the most by mandated closures and service limitations during the COVID-19 pandemic, including:

  • Businesses that were forced to stop serving food or beverages on their premises, such as restaurants and bars;
  • Businesses that had to cease operations completely, including gyms, fitness centers, and movie theaters;
  • Any retail businesses that were required to close or were subject to in-person restrictions; and
  • Businesses that were closed to the public, such as barbershops, hair salons, tattoo and piercing parlors, and similar personal care service providers.

The recently enacted municipal law not only makes it unlawful for commercial landlords to enforce the personal liability provisions in the lease and rental agreements of COVID-19-impacted tenants but also prohibits landlords from even threatening or attempting to hold a tenant personally liable for a failure to fulfill his or her lease agreement.

Contact:

  • Email: info@cealegal.com, Phone: (212) 618 1644.

Compliments of CEA Legal P.C. – a member of the EACCNY.