Rosenberg & Estis, P.C., has achieved a decisive victory in the Commercial Division of the New York County Supreme Court, thwarting an attempt by four individual guarantors of a Manhattan commercial lease to use the New York City Guaranty Law to avoid paying rent in the pandemic.
Brett Theis, a member of Rosenberg & Estis, and Justin Weitzman, associate at the firm, represented the landlord-plaintiff, Broadway 1384 LLC, an entity owed by Juda Chetrit of The Chetrit Group. The case involved the breach of a lease by the tenant-defendant, 560 Seventh Ave. LLC, an entity owned by Sharif El-Gamal of Soho Properties, for office space at 1384 Broadway in the Garment District, in addition to a breach of a commercial lease guaranty by El-Gamal and three other individual guarantors.
The tenant leased the office space for the sole purpose of subleasing it to a religious group. El-Gamal had agreed to relocate the religious group from his Midtown development site at 570 7th Avenue, so he could construct the Margaritaville Resort in Times Square, a 32-story 170,000-square-foot hotel. The tenant failed to pay rent, beginning in April 2020, and the subtenant remained in possession of the office space following the expiration of the lease in June 2020 (after El-Gamal failed to extend the lease or relocate the subtenant).
Citing COVID-19-related defenses such as “frustration of purpose” and “impossibility of performance,” the tenant argued in the ensuing litigation that it was not obligated to pay rent while its subtenant remained in possession of the space. Additionally, the individual guarantors claimed that they were shielded by the protections afforded to religious organizations under New York City’s Guaranty Law based on the fact that their subtenant was a religious organization. Rosenberg & Estis argued successfully that the Guaranty Law did not apply to the tenant and its guarantors because the tenant was merely a sublandlord, which was not required to cease business due to the government’s COVID-19 shutdown.
Justice Joel M. Cohen agreed, and granted summary judgment to Juda Chetrit against the tenant and its individual guarantors, ordering more than $1 million in back rent, liquidated damages, attorneys’ fees, interest and costs. The parties quickly settled their dispute, with a $1 million-plus payment secured for the landlord, after Justice Cohen granted summary judgment.
Signed by Mayor de Blasio in May 2020, the New York City Council’s Guaranty Law provided rent relief to commercial tenants and their guarantors, under select conditions including the pandemic forcing their closure, for the period between March 7, 2020 to June 30, 2021.
“We’re pleased to recover a substantial sum for another one of our clients at a time when the decks have been unfairly stacked against landlords and the enforcement of arms-length transactions,” Theis said. “The City Council hastily enacted the Guaranty Law in response to COVID-19, but it’s not a blanket ‘get out of jail free’ card. It needs to be carefully analyzed and applied very selectively.”