Commercial tenants in NYC have been on the short-end of the stick for much of the COVID-19 lockdown and haven't had much to celebrate. A bit of welcome news arrived late last week though, as a bill was enacted in NYC temporarily prohibiting the enforcement of any PERSONAL liability provisions in commercial leases or rental agreements involving businesses that have been severely impacted by COVID-19 and were required to shut down by Executive Order.

 

While this bill applies to businesses across the board, it specifically covers:

The language focuses on retail leases and fails to mention office leases/other commercial spaces.

Why?

According to the bill, the law only applies when the guarantor of a lease is a natural person as opposed to an entity. It would apply to full payment and performance as well as other types of guarantees, but does not relieve a natural person of liability if the actual person is the named tenant on the lease. The bill also states;

“Threatening to or attempting to enforce such a provision would also be considered a form of harassment.”

Landlords will likely challenge this legislation, although it’s unclear whether the personal liability provisions provided in independent guarantees rather than in a lease itself would apply here.

Due to the uncertainty regarding restrictions in New York City, it’s possible that the law could be amended to extend beyond the coverage period in which the default or other triggering event under a lease occurred. Landlords should consider how to structure lease transactions during this nprecedented time and start pivoting to other options as well to protect their interests.