On March 31, 2023, United States District Court Judge Ronnie Abrams handed down a highly anticipated decision striking down New York City’s controversial Guaranty Law as unconstitutional.  The case, Melendez v. City of New York, was remanded to the District Court by the Second Circuit Court of Appeals, which had expressed skepticism about the Guaranty Law’s constitutionality.  As a result of the District Court’s ruling, commercial landlords may now pursue claims they have against personal guarantors for unpaid commercial rents that were affected by the Guaranty Law. 

By way of background, in 2020, as part of its COVID-19 relief efforts, the New York City Council passed Section 22-1005 of the New York City Administrative Code, commonly known as the “Guaranty Law.”   The Guaranty Law, as amended, effectively canceled debts arising under personal guaranties of certain commercial leases that became due between March 7, 2020 and June 30, 2021.  As I wrote in an October 27, 2020 article for the New York Law Journal, the Guaranty Law was therefore vulnerable to being stricken down as violative of the Contracts Clause of Article I of the United States Constitution. 

In its very carefully reasoned decision striking down the Guaranty Law, the Court specifically noted that the law ran afoul of the Contracts Clause because it permanently (as opposed to temporarily) extinguished the payment obligations arising under personal guaranties during the statutory window period. 

The Court further held, among other things, that the law: placed the economic burden of this pandemic relief measure exclusively on landlords; did not condition the relief contained therein on any demonstration of need or hardship; and made no effort to compensate landlords, who continued to have to pay their taxes and expenses without rental income in cases where tenants defaulted and the Guaranty Law absolved guarantors of their obligations to pay.

Indeed, given current uncertain market conditions for commercial property owners, the Guaranty Law’s invalidation may provide something of a lifeline to commercial landlords, who may now pursue recovery of rents that they might have previously written off when the law was in place. 

Commercial property owners are thus advised to review their financial records and consider whether they would like to pursue legal action to recover those funds, now that the Guaranty Law has been invalidated.  Similarly, personal guarantors of commercial leases who have until now benefitted from the Guaranty Law’s protection should consider seeking counsel to get ahead of any potential litigation that may arise following the Guaranty Law’s invalidation.

If you have any questions or would like to discuss next steps following the invalidation of the Guaranty law, please do not hesitate to contact us.