New York city restaurateurs returned from the holiday weekend last month to receive a somewhat unexpected gift.
NYC Mayor Bill de Blasio signed into law a package of Covid-19 relief bills, including one that temporarily bars landlords from going after restaurant and store owners’ personal assets. The law suspends the enforcement of personal liability provisions in commercial leases or rental agreements during the COVID-19 pandemic. Attempting to enforce such provisions constitutes harassment under the measure.
“With the signing of my bill, any small business owner with a personal liability clause in their lease will see that provision temporarily suspended, and they will no longer have to fear their landlord going after their personal life savings and assets because of a disaster no one saw coming,” Council member Carlina Rivera, the bill’s sponsor, said.
Opponents and some council members had raised legal concerns about the bill, saying the city was overstepping its authority by interfering with private contracts. Attorneys also pointed to the fact that personal liability provisions are often part of separate guaranties signed by the tenant, not baked into lease agreements as the council bill implies.
In addition to the personal liability measure, the mayor signed a bill that expands the definition of residential and commercial tenant harassment to include threats based on the tenant’s status as a Covid-19 affected person, essential employee or recipient of a rental concession or forbearance.
The NYC Mayor’s signing came on the heels of The New York City Council approving the measure a week earlier that would protect restaurants and retailers from certain legal action if they violate their leases.
The measure, introduced by the Manhattan Democrat Rivera, bars the enforcement of personal liability provisions in commercial leases or rental agreements. Under the bill, attempting to enforce such provisions — which allows landlords to go after tenants’ personal assets in the event of a lease default — would be considered harassment. The council approved the bill 44 to 6.
“Losing your business is hard enough, but imagine someone coming after your home as well,” Speaker Corey Johnson said ahead of the vote.
This will enable struggling business owners not to have to worry about their life savings and assets “because of a disaster that no one saw coming.”
The latest version of the bill specifically singles out restaurants, bars and non-essential retailers and businesses (including gyms and movie theaters) that were forced to close due to Covid-19 and sets a clearer timeline for the suspension of personal liability provisions. While the initial bill barred enforcement of such provisions through at least September 2020, the approved measure applies to defaults that occurred between March 7, 2020, and September 30, 2020.
During a hearing held last month, real estate groups and even some officials questioned the legality of the measure. The Real Estate Board of New York testified at the time that the bill calls for a “seemingly impermissible unilateral amendment of existing valid contracts.”
Before voting in favor of the measure, Council member Justin Brennan said he still had concerns that the measure helps “Louis Vuitton as much as it helps Louie’s pizza.” Council member Kalman Yeger voted against the bill, reiterating his stance that the measure was an unconstitutional intrusion on existing contracts.
The council also approved a measure that would expand the definition of residential and commercial tenant harassment to include threats based on the tenant’s status as a Covid-19 impacted person, essential employee or recipient of a rental concession or forbearance.
“Many large national and international tenants have the means to pay their rent and are shamefully using this crisis not to,” REBNY President James Whelan said. “Our members continue to work with small businesses who genuinely need help to weather this crisis, but the bill as drafted will provide an excuse for credit-worthy tenants to evade their financial obligations to our City.”