In response to the COVID-19 pandemic, New York has seen a flurry of legislative action at both the city and state levels affecting real estate and landlord-tenant matters. Rosenberg & Estis, P.C. continues to monitor these developments and to analyze their impact on owners. Below please find a brief summary of several bills passed by the New York State Legislature that are awaiting further action by the Governor, as well as legislation recently enacted by the New York City Council in relation to personal guaranties of certain commercial leases.
PENDING NEW YORK STATE LEGISLATION
The following bills have passed both the New York State Senate and Assembly, and are awaiting delivery to Governor Cuomo for signature or veto. We will update you once the Governor takes action on these bills.
S.8192B, Hoylman / A.10290B, Dinowitz:
This bill (the “Tenant Safe Harbor Act”) creates a moratorium on evictions with respect to rent that accrued during the COVID-19 pandemic, in order to help keep residential tenants in possession.
The bill, among other things:
- Prohibits courts from issuing a warrant of eviction or judgment of possession against a residential tenant or other lawful occupant who suffered financial hardship during the COVID-19 covered period for the nonpayment of rent that accrues or becomes due during the COVID-19 covered period. Instead, in a summary proceeding under Article 7 of the Real Property Actions and Proceedings Law, courts may only award money judgments for any such unpaid rent.
- Permits tenants to raise financial hardship as an affirmative defense in nonpayment proceedings. Courts must examine several factors in determining tenants’ or lawful occupants’ financial hardship, including (1) their income prior to and during the COVID-19 covered period; (2) their liquid assets; and (3) their eligibility for and receipt of unemployment and other public assistance benefits.
The “COVID-19 covered period,” or the period for which only money judgments are permitted, is March 7, 2020 until the date on which none of the provisions in the Governor’s Executive Orders that closed or otherwise restricted public or private businesses or places of public accommodation, or required postponement or cancellation of all non-essential gatherings of individuals of any size for any reason issued in response to the COVID-19 pandemic, continue to apply in the county of the tenant’s or lawful occupant’s residence.
S.8419, Kavanagh / A.10522, Cymbrowitz.
This bill (the “Emergency Rent Relief Act of 2020”) establishes an interim residential rent relief program for low-income tenants. The program will issue a subsidy for tenants who were rent burdened prior to the COVID-19 pandemic (defined as paying more than 30 percent of their income toward rent) and are now experiencing an even greater rent burden due to a loss of income.
The Emergency Rent Relief Act of 2020 would provide rental assistance vouchers to landlords through DHCR on behalf of tenants who experienced an increase in rent burden because of a loss of income as a result of the COVID-19 pandemic. The spending cap for this program is $100,000,000, and the covered period would be April 1 through July 31, 2020.
Households would be eligible if they make up to 80% Area Median Income (AMI) prior to March 7, 2020 and at the time of application; were rent burdened both prior to March 7 and at the time of application, and household members have lost income during the covered period. The subsidy would be a voucher paid to the landlords for the gap between their pre-COVID rent burden and their new rent burden, up to 125% Fair Market Rent (FMR).
DHCR’s commissioner must prioritize households with the greatest economic and social need and must, at a minimum, account for historic income levels, the rent burden of the household, the percentage of income lost, and the risk of homelessness or eviction. The commissioner must also publicly report the monthly expenditures made under the program including demographic and regional data by October 31, 2020.
S.8243C, Kavanagh / A.10351B, Rozic.
This bill would require New York state-chartered banks and state-regulated mortgage servicers to grant 180 days of mortgage payment forbearance (plus an additional 180 day extension, if needed) to residential mortgagors who, during the “NYS On PAUSE” period, are in arrears or on a trial plan or who have applied for loss mitigation and demonstrate financial hardship. Mortgagors must submit an application for such forbearance and the application must be made widely available by the state-chartered banks and mortgage servicers.
The bill does not apply to mortgages made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer, or trustee of such obligations.
The bill would allow a mortgagor who is granted forbearance (which may be retroactive to March 7, 2020) to:
- extend the term of the loan for the length of the forbearance (with interest waived for the term of the forbearance and any late fees due to the forbearance waived),
- have the arrears accumulated during the forbearance payable on a monthly basis for the remaining term of the loan (without any penalties or late fees due to the forbearance), or
- defer the arrears accumulated during the forbearance as a non-interest-bearing balloon payment payable at the maturity of the loan or when the loan is satisfied (with any late fees accumulated as a result of the forbearance waived), subject to the safety and soundness of the lender.
The failure to comply with the forbearance provisions of this bill can be a defense in a foreclosure action.
S.8113A/ A.10521, Mosley.
This bill prohibits public utilities or municipalities from terminating or disconnecting services to any residential customer for the nonpayment of an overdue charge for the duration of the COVID-19 state of emergency. This moratorium will last 180 days from the expiration of the COVID-19 state of emergency for those residential customers that have experienced a change in financial circumstances, and the utility corporation or municipality must offer such residential customers the right to enter into, or restructure, a deferred payment agreement without the requirement of a down payment, late fees or penalties.
S.8138B, Martinez/ A.10252A, Stern.
Under this bill, a local taxing jurisdiction may choose to defer scheduled payments of property taxes while the COVID-19 state of emergency is in effect. The bill will also allow for the local taxing jurisdiction to permit installment payments. No additional interest or penalties will accrue during any deferment, and counties will not be held liable by a jurisdiction’s decision to defer or reduce taxes.
S.8122B, Comrie / A.10241A, Hyndman.
Due to the COVID-19 state of emergency, this bill extends the application and renewal deadline to file for real property tax exemption or abatement programs until July 15, 2020.
ENACTED NEW YORK CITY LEGISLATION
Int 1932-2020 (Enacted May 26, 2020) – Prohibiting Enforcement of Certain Commercial Lease Guaranties
This new law temporarily prohibits the enforcement of personal guaranty provisions in commercial leases or rental agreements involving businesses that were impacted by mandated closures and service limitations in the Governor’s Executive Orders for obligations arising between March 7 and September 30, 2020. Specifically, it covers (1) businesses that were required to stop serving food or beverages on-premises (restaurants and bars); (2) businesses that were required to cease operations altogether (gyms, fitness centers, movie theaters); (3) retail businesses that were required to close and/or subject to in-person restrictions; and (4) businesses that were required to close to the public (barbershops, hair salons, tattoo or piercing parlors and related personal care services). Notably, the law does not apply to office space.
The law provides, in relevant part:
A provision in a commercial lease or other rental agreement involving real property located within the city that provides for one or more natural persons who are not the tenant under such agreement to become, upon the occurrence of a default or other event, wholly or partially personally liable for payment of rent, utility expenses or taxes owed by the tenant under such agreement, or fees and charges relating to routine building maintenance owed by the tenant under such agreement, shall not be enforceable against such natural persons…
The law is poorly drafted and with a seemingly limited practical understanding of the transactions it aims to address. Among other things, a review of the law’s text reveals the following:
- While the law applies to a “provision” that is “in” a “commercial lease or other rental agreement involving real property,” many guaranties executed in relation to commercial leases are stand-alone documents that are not “provisions” contained “in” the leases themselves. Thus, a real question exists as to whether the law applies to these stand-alone agreements.
- Under many guaranties executed in connection with commercial leases, the guarantor’s liability for sums due from the tenant is primary and direct, and is not contingent upon the tenant committing a default or the occurrence of an event. The law, on its face, appears inapplicable to such guaranties.
- Unlike natural persons who guarantee commercial leases for corporate tenants, the law offers no relief to individual proprietors who execute commercial leases in their own names.
- Commercial leases typically render tenants liable for a wide variety of monetary obligations, including many beyond the law’s scope — such as, for instance, the owner’s attorneys’ fees incurred in connection with the tenant’s breach of the lease. Guaranties that are otherwise within the law’s scope seemingly remain enforceable in relation to these other obligations.
Additionally, serious questions exist as to whether the law violates the New York State Constitution and the Contracts Clause of the United States Constitution.
If you have questions about any of the foregoing bills or laws and their potential effect on your operations, we would be happy to discuss with you at greater length.