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Guaranty Law Invalidated
In March 2020, as New York City became the epicenter of the COVID-19 pandemic, Governor Andrew Cuomo issued a number of executive orders, some of which required non-essential businesses to close their doors. As a consequence, many commercial businesses began defaulting on rent payments or attempting to terminate their leases altogether, to potentially catastrophic effect for landlords, who rely on rent payments to cover expenses (e.g., taxes and debt service).
In May 2020, the New York City Council enacted several local laws to combat the economic impact of the pandemic on struggling small businesses. Among the laws passed in this legislative relief package were amendments to the Commercial Harassment Law (Local Law No. 53 of 2020) and to the Residential Harassment Law (Local Law No. 56 of 2020), and the "Guaranty Law" (Local Law No. 55 of 2020). While facially implemented to protect struggling commercial tenants and small businesses, the practical effect of these laws was to shift the economic burden of the pandemic almost exclusively to landlords, who were now precluded from enforcing certain negotiated personal guaranties contained in their lease agreements. Compounding that restriction, the amendments to the Harassment Laws stoked apprehension with respect to the consequences of demanding rent payments directly from tenants.
By far, the most egregious action was the enactment of the Guaranty Law, which limited the ability of commercial landlords to enforce their bargained-for personal guaranties for the period from March 7, 2020, through June 30, 2021 to the extent the guarantor was an individual. New York City, N.Y., Code §22-1005
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