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.  But the Guaranty Law may soon be invalidated as unconstitutional.  Consequently, personal guarantors of commercial leases may soon be vulnerable to suit for unpaid rent that became due during that statutory window period.

A group of landlords sued the City of New York in the United States District Court, arguing that the law was unconstitutional.  The name of that case is Melendez v. City of New York.  As I wrote in an October 27, 2020 article for the New York Law Journal, the Guaranty Law is vulnerable to being stricken down as violative of the Contracts Clause of Article I of the United States Constitution. 

Although the District Court in Melendez initially held that the Guaranty Law is constitutional, the Second Circuit Court of Appeals expressed skepticism, reversed the District Court’s decision, and directed the District Court to reconsider the Guaranty Law’s constitutionality.  On December 12, 2022, the District Court held oral argument on the landlords’ and City’s respective summary judgment motions and is now poised to decide whether the Guaranty Law should be stricken down. 

In light of the possibility that the Guaranty Law could soon be invalidated as unconstitutional, commercial landlords may soon be able to sue to recover unpaid rent that became due between March 7, 2020 and June 30, 2021, which landlords may have been waiting to recover or may have otherwise written off as uncollectible under the Guaranty Law. 

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, should the law be stricken down.  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 in the event the Guaranty Law is invalidated.

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