R&E Prevails In Pandemic-Related Holdover Dispute: Court Rules That Commercial Tenants Must Establish Financial Hardship for Eviction Protection Under Governor Cuomo’s Executive Orders

Civil Court of the City of New York, County of New York, Decided March 4, 2021
Featuring Jason R. Davidson, Anthony J. Virga

Rosenberg & Estis prevailed in Civil Court of the City of New York on behalf of a New York City landlord, enabling a pandemic-related holdover proceeding to continue. The firm successfully argued that Governor Cuomo’s Executive Orders do not preclude commercial landlords from filing holdover petitions predicated on the nonpayment rent. Critically, the firm established that commercial tenants opposing holdover petitions must offer detailed evidence demonstrating, on a case-by-case basis, financial hardship due to the pandemic. Judge Richard J. Tsai denied the commercial tenant’s pre-answer motion to dismiss the landlord’s holdover petition.

R&E represented the landlord of the property located at 1407 Broadway in Manhattan, SRI Eleven 1407 Broadway Operator LLC, in the case against Mega Wear Inc. and its subtenant before Judge Richard J. Tsai.

The landlord initiated a holdover proceeding against Mega Wear Inc. and its subtenant after serving a notice of termination predicated on the tenant’s failure to pay rent, which triggered a conditional limitation in the lease. In response, the tenant argued that the Governor’s Executive Orders bar the initiation of any proceeding or enforcement of eviction of a commercial tenant facing financial hardship due to the COVID-19 pandemic “for nonpayment of rent.”

Although Judge Tsai found that the Governor’s Executive Orders apply to commercial holdover proceedings where the underlying default is the nonpayment of rent, he denied the tenant’s motion to dismiss the proceeding, rationalizing that “the affidavit from Tenant’s president was insufficient to meet Tenant’s burden of establishing that it suffered financial hardship due to the COVID-19 pandemic.” Judge Tsai opined that the tenant was required to offer substantive evidence to support a hardship claim and rejected its argument that all non-essential businesses suffered financial hardship per se. Going forward, the Court made it clear that each commercial tenant must make a particularized showing of its financial circumstances to establish financial hardship due to the pandemic.

Significantly, with respect to a commercial tenant’s hardship burden, the Court stated that “financial impact is not synonymous with financial hardship,” while noted that “a tenant might have access to cash reserves or assets to pay the rent, even in the face of little or no revenue from the business itself.” In denying the tenant’s pre-answer motion to dismiss, the Court directed the tenant to serve an answer to the holdover petition within 10 days of service of a copy of the decision and order with notice of entry.