A number of decisions were made regarding the impact of the pandemic on commercial leases.

New York City enacted Local Law No. 55-2020, adding Section 22-1005 of the Administrative Code (“Personal Liability Provisions in Commercial Leases”), otherwise known as the “Warranty Act.” The Warranty Act provides in part as follows:

“A provision in a commercial lease…or [in another document] in respect of such rental agreement… which provided that one or more natural persons… on the occurrence of a default or other event, be held liable in whole or in part for [amounts] owed by the tenant under such agreement… are not enforceable against such natural persons if the conditions of paragraphs 1 and 2 are met:

  1. The tenant meets the conditions of sub (a), (b) or (c):

(a) The tenant was required to cease serving food or drink for consumption on site or to cease operation under Executive Order No. 202.3 issued by the Governor on March 16, 2020;

(b) the tenant was a non-essential retail fixture subject to personal restrictions under the direction of the New York State Department of Economic Development pursuant to executive order number 202.6 issued by the governor on March 18, 2020; or

(c) the tenant was required to close members of the public under Executive Order No. 202.7 issued by the Governor on March 19, 2020.

  1. The default or other event by which such natural persons are held personally liable in whole or in part for such obligation has occurred between March 7, 2020 and March 31, 2021.”

In 40 X Owner LLC v. Masi, the plaintiff-landlord sought to recover unpaid rent from the guarantor of a lease of office space. Defendant argued that the Warranty Act stood in the way of recovery. The New York County Supreme Court granted the plaintiff’s request for a default judgment on the issue of liability and instructed the plaintiff to file a note for an inquest to determine the amount owed. According to the Court,

“…the above provision does not apply in this case because it concerned office space. It did not refer to a “non-essential shop fitting”, a restaurant or a business that was required to be close to the public (such as gyms). There is no basis to believe that this provision of the Administrative Code applies to a tenant who rented office space and simply stopped paying rent, even if the business slump was due to Covid-19.

This decision, on 2021 NY Slip On 30041, dated January 7, 2021, was posted at: http://nycourts.gov/reporter/pdfs/2021/2021_30041.pdf.

The following rulings were made by Judge Arlene P. Bluth of the New York County Supreme Court.

In 1140 Broadway LLC v. Bold Food, LLC the plaintiff-landlord sued the tenant and his guarantor for unpaid rent. Defendants invoked in defense the doctrines of frustration of the target and impossibility of execution. The tenant’s business was to manage and advise restaurants. The Court ruled that the frustration of the target doctrine “doesn’t apply here, where the tenant rented office space, the tenant’s sector suffered a precipitous decline and the tenant [sic] unable to pay the rent.” The Court also refused to apply the impossibility doctrine. According to the Court, granting the claimant’s request for summary judgment on the issue of liability and ordering a lawsuit to determine the amount of damages,

“‘[i]impossibility excuse the performance of a party only when the destruction of the object of the contract or the means of performance renders the performance objectively impossible…'[citation omitted].…[A]Although restaurants have had to scale back certain activities (such as dining indoors) due to the pandemic, they were not completely shut down. Many food businesses decided to close due to the financial impact of both the pandemic and public health regulations, but that doesn’t mean there was a ‘destruction of subject matter’ in the contract at issue here, which covered office space [to provide consulting services] on the twelfth floor of an office building. The court cannot determine that the doctrine of impossibility applies here.”

This decision, on 2020 NY Slip On 34017, dated December 3, 2020, was posted at: http://www.nycourts.gov/reporter/pdfs/2020/2020_34017.pdf.

In ITS Soho LLC v. 598 Broadway Realty Associates Inc. began a seven-year lease in which the tenant would build and operate a gym. September 2020. Tenant has requested dissolution and termination of the lease. The court dismissed the case and ordered the clerk to make a ruling, including costs and disbursements. According to the Court,

“[a] temporary closure of a gym does not represent a substantial frustration of a nearly ten-year lease… That the plaintiff’s preferred use of the property may not be profitable for a few months is no basis for this court to intervene and terminate the contract. tear… Plaintiff argues that defendant has violated this covenant [of good faith and fair dealing] by refusing to negotiate to let plaintiff out of the lease and continue to charge rent while the plaintiff is unable to build on the property. The court cannot determine that Defendant’s refusal to accede to Plaintiff’s desire to terminate a contract constitutes a valid cause of action. Defendant was under no obligation to renegotiate the lease so that Plaintiff could walk away and leave a vacant space.”

This decision, on 2020 NY Slip On 34300, dated December 22, 2020, was posted at: http://www.nycourts.gov/reporter/pdfs/2020/2020_34300.pdf.

Similarly, the Court ruled in summary proceedings regarding liability in a landlord’s claim against his tenant who had operated a gym, and against the guarantor of the lease, for non-payment of rent. As a result of the pandemic, defendants had argued against intent, impossibility of execution and failure of consideration. According to the Court,

“[t]o Allowing the doctrines of impossibility or target frustration to be applied to commercial tenants who are no longer paying due to the pandemic would raise numerous questions. Would it apply to any commercial tenant and, if not, what are the quality criteria for such shelter? What about commercial tenants who were allowed to operate during the pandemic but still lost revenue? And because this is a widespread problem, there is a risk that looking at tenants’ claims on a case-by-case basis would lead to highly inconsistent and unfair results. In other words, this is clearly the role of the other branches of government…”

As for the defense of the failure of the recital, “[t]it is not the case with him that they are prohibited from ever running a gym on the property again.” Cab Bedford LLC v. Equinox Bedford Ave, Inc., 2020 NY Slip On 34296, closed on December 22, 2020, is posted on http://www.nycourts.gov/reporter/pdfs/2020/2020_34296.pdf.

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