NYC’s Personal Guaranty Suspension Expiring This September
The past seven months have not been easy for business owners. New York, in particular, has been hit hard with the effects of COVID-19, which has upended the way people shop, eat and do business, to name a few.
And, while the news of indoor dining has sparked a sense of hope for restaurant owners, the end of September is still worrisome. That’s because on September 30, Local Law 1932-A — which suspended personal liability under a tenant’s guaranty in commercial leases — is due to expire.
Commercial leases typically include a personal liability provision — also known as a personal guaranty — in which the guarantor agrees to take responsibility for the lease payments of the premises in the event that the business fails to pay rent during the lease term. This may also come into play if the business fails to pay rent after vacating the space before the end of the lease term.
While the lease is generally signed by a company or corporation responsible for the liabilities, the personal guaranty is signed by the individual owner(s). Therefore, this allows the commercial landlord to collect their owed payments from the personal guarantor if the business itself cannot pay, which then provides the landlord with an additional level of security for payments due.
Local Law 1932-A
Back in May, the New York City Council passed a law that includes provisions aimed at helping restaurants and small business owners manage their responsibilities under their lease. A major component of this law was the suspension of the enforcement of personal guaranties for defaults that occurred between March 7, 2020, and September 30, 2020.
This local law gave small businesses some wiggle room to get back on their feet without the fear of getting evicted for failing to make rent payments. But, regardless of its intent, the suspension did come with certain restrictions, including:
- The guarantor must be a natural person who is a different person than the tenant under the commercial lease being guaranteed.
- The tenant’s business was required to close to the public due to the executive order resulting from COVID-19.
What’s to Come
The clock is ticking as the law’s expiration date draws near. However, business owners may be in luck —New York City Council is working to extend the law until March 2021. Regardless, the true effects of this law have yet to be revealed, as the court systems have also been shut down for a long period of time, so a judicial decision regarding this specific matter has not been incurred as of yet.
Additionally, landlords will use both the ambiguity of the law and the legal constitutionality of the local government’s authority to amend personal contracts, as arguments against the suspension and the possible extension.
Click HERE for the article on PropertyShark.