On September 2, 2021, Governor Kathy Hochul signed into law an extension of the commercial and residential eviction moratoriums through January 15, 2022 (the “Moratorium Extension”). Crucially, as a result of the recent ruling by the United States Supreme Court, the new law provides owners with a mechanism to challenge tenants’ assertions of financial hardship by reason of the COVID-19 pandemic. Thus, while the New York real estate industry must continue to labor under the weight of these moratoriums through early next year, owners now at least have a path forward in many eviction proceedings.
The Moratorium Extension essentially continues the structure of the moratoriums that was in place through August 31. As before, the applicable hardship declaration form (whether commercial or residential) must be included with every written notice required to be served prior to the commencement of an eviction proceeding as well as with every initiating pleading served on a tenant. In order to commence an eviction proceeding, an owner must file an affidavit of service demonstrating that it served a hardship declaration and attesting that either (1) at the time of the filing, the owner did not receive a completed hardship declaration from the tenant, or (2) the tenant returned the completed hardship declaration but is intentionally damaging the property or engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others, with a specific description of the behavior alleged.
Now, however, the Moratorium Extension adds another basis for an owner to commence an eviction proceeding where the tenant returns a hardship declaration: where the owner “believes in good faith that the hardship certified in the hardship declaration does not exist.”
As a general matter, where a tenant returns a signed hardship declaration, the eviction proceeding will be stayed until January 15, 2022, which stay will continue “unless the court finds the [tenant’s] hardship claim invalid.” An owner can challenge a tenant’s hardship declaration by making a motion on notice “attesting a good faith belief that the [tenant] has not experienced a hardship,” whereupon “the court shall grant a hearing to determine whether to find the respondent’s or defendant’s hardship claim invalid” (emphasis supplied).
In other words, an owner making the required attestation now has the right to a hearing to test the tenant’s hardship claims. This new right is a direct result of the United States Supreme Court’s recent ruling in Chrysafis v Marks (see our August 12, 2021 client alert here) which held that a tenant’s ability to stay eviction proceedings by unilaterally declaring a hardship violated owners’ due process rights.
In the residential context, the Moratorium Extension defines “hardship” as follows:
“(a) an inability to pay rent or other financial obligations due in full pursuant to a lease or rental agreement or obtain alternative suitable permanent housing due to one or more of the following reasons where public assistance, including unemployment insurance, pandemic unemployment assistance, disability insurance, or paid family leave, does not fully make up for the loss of household income or increase expenses:
(i) a significant loss of household income during the COVID-19 pandemic; or
(ii) increase in necessary out-of-pocket expenses related to performance of essential work or related to health impacts during the COVID-19
(iii) childcare responsibilities or responsibilities to care for an elderly, disabled, or sick family member during the COVID-19 pandemic have negatively affected the ability of the tenant or a household member to obtain meaningful employment or earn income; or
(iv) increased necessary out-of-pocket expenses; or
(v) moving expenses and related difficulty in securing alternative housing make it a hardship to relocate to another residence during the COVID-19 pandemic; or
(vi) other circumstances related to the COVID-19 pandemic have significantly reduced household income or significantly increased expenses;
(b) an inability to vacate the premises and move into new permanent housing because doing so would pose a significant risk of severe illness or death from COVID-19 that a tenant or household member would face due to being over the age of sixty-five, having a disability or having an underlying medical condition, which may include but is not limited to being immunocompromised.”
A “hardship” alleged by a commercial tenant under the Moratorium Extension exists where:
“[it] is unable to pay the rent in full or other financial obligations under the lease in full or obtain an alternative suitable commercial property because of one or more of the following reasons and any public assistance the business has received since the start of the COVID-19 pandemic has not fully made up for the business’s loss of revenue or increased expenses:
a. Significant loss of revenue during the COVID-19 pandemic; or
b. Significant increase in necessary expenses related to providing personal protective equipment to employees or purchasing and installing other protective equipment to prevent the transmission of COVID-19 within the business; or
c. Moving expenses and difficulty in securing an alternative commercial property make it a hardship for the business to relocate to another location during the COVID-19 pandemic.”
If the court finds the tenant’s hardship claim valid after a hearing, the court shall grant or continue the stay through January 15, 2022. In residential eviction proceedings, the court is also required to “direct, if the respondent appears to be eligible and has not yet applied, that the parties apply to the [Emergency Rental Assistance Program [“ERAP”]], so long as [ERAP is] accepting applications.”
If the court finds the tenant’s hardship claim invalid after the hearing, “the proceedings shall continue to a determination on the merits.”
The new law provides for similar procedures in residential and some commercial mortgage foreclosure proceedings, as well as in tax lien foreclosure proceedings. Additionally, the law extends the covered hardship period for residential tenants under the Tenant Safe Harbor Act through January 15, 2022. As a result, owners cannot obtain warrants of eviction for rent arrears accumulated due to financial hardship between March 13, 2020 and January 15, 2022; they are entitled only to money judgments for such amounts. A companion bill also signed by Governor Hochul on September 2 allocated an additional $150 million to the ERAP program.
The atmosphere surrounding the Moratorium Extension is very fluid. Multiple media reports suggest that legal challenges to the new law are imminent. Assuming the law survives legal challenge, it remains to be seen how the courts will administer the new hardship hearings. Some immediately apparent questions are: (1) What constitutes a “good faith belief” sufficient for an owner to challenge a hardship declaration? (2) How quickly will courts hold hearings and issue decisions? (3) Will discovery be necessary or permitted, and what happens if the tenant does not fully comply with discovery obligations? (4) Will tenants otherwise be able to delay the hardship hearing process and run out the clock until January 15, 2022, rendering owners’ hearing rights essentially illusory?
We will be monitoring the situation closely to ascertain answers to these and other questions that will surely arise as the Moratorium Extension is implemented.
If you have any questions about the Moratorium Extension or the state of the law more generally, please do not hesitate to reach out to us.