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The Guaranty Law Only Guarantees A Broken Contract
A wave of legislation designed to aid tenants during the COVID-19 pandemic has had an outsized effect on commercial landlord-tenant relations in New York City. The bill that has attracted perhaps the most attention is NYC Administrative Code § 22-1005, known as the "Guaranty Law." The Guaranty Law canceled the guaranty obligations of qualifying guarantors and left landlords without a remedy to recoup their losses. Notably, the Guaranty Law has been interpreted inconsistently and is the subject of a constitutional challenge in federal court. This has added to the uncertainty of both landlords and tenants, whose obligations and responsibilities remain unclear.
The Guaranty Law is titled "Personal liability provisions in commercial leases." It was passed by the New York City Council and took effect immediately upon its enactment on May 26, 2020. It bars the enforcement of personal guaranty provisions in commercial leases for premises in New York City if each of two conditions are met.
First, the tenant must have met one or more of three criteria. It must 1) have been required to cease serving patrons food or beverage for on-premises consumption or to cease operation; 2) be a nonessential retail establishment subject to in-person limitations; or 3) have been required to close to members of the public under Executive Order 202.7. The second condition is that "[t]he default or other event causing such natural persons to become wholly or partially personally liable for such obligation occurred between March 7, 2020 and June 30, 2021, inclusive." (The end date was extended from the original date of Sept. 30, 2020).
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