Commercial Lease Guarantees
On Tuesday, May 26, 2020, Mayor DeBlasio signed Local Law 1932-A, which provides that personal guarantees of commercial New York City leases for non-essential businesses (which includes retail stores and restaurants) are unenforceable with respect to lease defaults which occur from March 7, 2020 through September 30, 2020.
Often when a business entity (such as a corporation) signs a lease for commercial space, the landlord will require that the individual owner(s) of the business personally guarantee the lease obligations. Thus, if the tenant defaults on rent or other payments due under the lease, the landlord can sue the individual owners personally for the moneys owed. Under Local Law 1932-A landlords will not be able to enforce personal lease guarantees if the lease default occurs during the period March 7 through September 30, 2020. While the new law will provide relief to business owners, its constitutionality has been called into question as it impairs validly executed agreements. It is therefore likely that the enforceability of Local Law 1932-A will be challenged, and it is an open issue as to whether the courts will uphold it.
If you have particular questions regarding commercial leases and lease guarantees please contact Stephen Goldstein at email@example.com, or at (646) 259-5024.
Contracts often contain what are known as “Force Majeure” clauses, which excuse a party’s performance under the contract where performance becomes impossible due to an event beyond the control of the non-performing party. For instance, a manufacturer might be excused from having to deliver construction equipment by a particular date if its factory were damaged by an earthquake. Typically the Force Majeure clause will list the types of events which excuse performance, such as “war, floods, epidemics, and other events beyond a party’s control.” In addition, the clause might provide that, if the event delays performance for more than say 60 consecutive days, the other party has a right to terminate the contract. In light of the current COVID-19 virus many parties are looking to Force Majeure clauses to excuse performance under agreements they are parties to. One question clients have recently asked is whether the pandemic excuses performance where the contract can still be carried out, but there is no value in carrying out performance. For instance, if someone agreed to rent a house in August in another state, but now cannot travel to that state due to the pandemic, can the rental be terminated by the lessee? For such a question, careful consideration must be given to the precise language of the agreement, as the typical Force Majeure language would not cover such a situation.
If you have particular questions regarding events of Force Majeure please contact Stephen Goldstein at firstname.lastname@example.org, or at (212) 586-5555.