Mayor Bill de Blasio just signed a bill that is aimed at protecting lease guarantors from personal liability after their businesses were shut down because of the standing governmental orders. With eviction proceeding shut down until well into the summer, the legislation's goal is to make sure a landlord, since it can't bring an eviction proceeding right now, doesn't decide to sue an individual under the guaranty.
One attorney has identified a problem with the measure however: Namely that the bill references a "provision in a commercial lease or other rental agreement." The hitch is this, attorney Maxwell Breed, a real estate and litigation partner at New York law firm Warshaw Burstein, tells GlobeSt.com: guaranties generally are separate instruments and not "provisions" of leases, or other agreements.
"Most of the time a guaranty is not a provision of a lease agreement but rather an independent instrument," he says. "That raises a question in my mind as to whether this bill will even accomplish the goal set out in the bill."
There is also the broader question of whether such an abridgement of contact is valid in the first place, but that is not the point Breed is honing in on. It would be possible to file an action under this argument, he believes. "Again, guaranties are usually independent of the leases themselves."
But he isn't advising landlords to do that.
"From a practical perspective I don't know if you want to go in front of a judge in this current environment filing an action against the guarantor because you couldn't go after the tenant because of the moratorium.
Also, the argument itself—insurance versus lease agreement—could be seen as a loophole, he continues.
"If you are litigating you want to come across as the good guy and you definitely don't want to be seen as pushing a case against, for example, a restaurant that is hurting from a shutdown."
If this bill does make its way into a courtroom, Breed believes it will be because of the constitutionality issues it raises. "You could construe this bill as changing rights and obligations under what is otherwise a valid contract."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
