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Guaranty Law Ruled Constitutional by Federal Court

Dear Clients,

As you may know, Local Law 2020/55 affecting personal liability provisions in commercial leases, now commonly referred to as the “Guaranty Law”, was among a package of laws enacted by the New York City Council in response to the COVID-19 pandemic. The Guaranty Law limits the right of landlords to enforce a guaranty in a commercial lease or rental agreement, made by a natural person, other than the tenant, for debts arising between March 2020 and March 2021, if the business was: (i) required to cease serving patrons food or beverages for in premises consumption under executive order 202.3, (ii) required to close to members of the public under executive order 202.7 or (iii) deemed a non-essential retail establishment, subject to in-person limitations under executive order 202.6.

A group of small residential and commercial landlords brought suit in federal court challenging the constitutionality of the Guaranty Law on various grounds, including that it violates the Contract Clause of the U.S. Constitution, which prevents states from passing laws which impair contractual obligations. After a lengthy analysis, in which the Court recognized that the law does impair contract rights, the Court concluded that the Guaranty Law advances a legitimate public interest and reasonably advances that interest. Accordingly, the U.S. District Court concluded that the Guaranty Law is not unconstitutional and dismissed the case (click here to read the decision).

We will advise of any further updates on the status of any appeal of this decision. In the meantime, please contact the attorneys at Rosenberg & Estis, P.C. with any questions relating to your ability to enforce the guaranty of a commercial lease.

Sincerely,

Luise A. Barrack, Deborah E. Riegel and Jason R. Davidson

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