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Individuals May Be Liable on Personal Guarantees Despite New York City Law Conferring Immunity

A commercial tenant failed to pay rent for more than two years.  The landlord sued two individuals who had signed personal guarantees on the lease.  The guarantors moved to dismiss the claims against them based on New York City Administrative Code § 22-1005.  This section, which was added by a local law enacted in the early days of the pandemic, provides immunity from the enforcement of certain personal guaranties of commercial leases during the period from March 7, 2020 to June 30, 2021, where the premises were affected by certain pandemic-related executive orders affecting the tenant’s business.

A lower court granted the guarantors’ motion to dismiss, but the landlord appealed, and the appellate court reinstated the claim.  721 Borrower LLC v. Moha, 2022 N.Y. App. Div. LEXIS 2407, 2022 N.Y. Slip Op. 2504 (1st Dep’t Apr. 19, 2022).  The court gave two reasons for its decision.  First, much of the time period during which the rent was not paid was prior to March 2020.  Thus, there was no basis for applying the Local Law to rent owed for periods before it took effect.  Second, even as to the unpaid rent that accrued during the statutory period, there remains a possibility that this local law, which has been challenged as a taking of landlords’ rights without just compensation, will ultimately be declared unconstitutional.  The appellate court directed that the complaint be reinstated so that the parties can further develop the record on the unresolved constitutional issue.