April 6th, 2020

COVID-19 and Commercial Leasing: What New York Landlords and Tenants Need to Know

A series of New York Executive Orders in response to COVID-19 are now interrupting normal business operations for nearly all landlords and commercial tenants -- including in the office, retail, restaurant and manufacturing sectors. Here’s a rundown of the current impact on commercial leasing from our Real Estate Group.

Required closures. The following businesses are required to close to the public:

  • Facilities authorized to conduct video lottery gaming, or casino gaming; gyms, fitness centers or classes; and theatres;[1]
  • Indoor retail shopping malls with over 100,000 square feet of retail space[2];
  • Indoor and outdoor places of public amusement (including amusement parks, carnivals, water parks, aquariums, zoos, arcades, fairs, children’s play centers, funplexes, theme parks, bowling alleys, family and children’s attractions)[3]; and
  • Barbershops, hair salons, tattoo or piercing parlors and related personal care services (including nail technicians, cosmetologists, estheticians, electrolysis and laser hair removal services)[4].

Restaurants and bars. Restaurants and bars may no longer serve patrons food or beverage on-premises; they are only permitted to serve food or beverages for off-premises consumption. Restaurants and bars with on-premises liquor licenses may sell alcohol for off-premises consumption, including take-out and delivery[5].

Essential and non-essential businesses. As most New York readers know by now, Governor Cuomo’s “New York State on PAUSE” Executive Order[6] required all non-essential businesses in New York to close. Specifically, the Order required all businesses and not-for-profit entities to reduce their in-person workforce by 100%, and operate using, to the maximum extent possible, telecommuting or work-from-home procedures. Additionally, this Executive Order requires all “essential businesses[7]” to implement social distancing measures: and everyone is required to maintain a 6-foot distance from others in public. The  COVID-19 pandemic restrictions were expanded to prohibit non-essential gatherings of individuals of any size for any reason (e.g. parties, celebrations or other social events)[8].

Penalties. Landlords and tenants whose operations exceed applicable density restrictions set forth in the COVID-19 New York Executive Orders will be deemed to have violated the law and the Uniform Code or applicable local building code[1]. State, county, and local code enforcement officials and fire marshals are authorized to issue landlords and tenants appearance tickets, Notices of Violation, Orders to Remedy violations, and/or Do Not Occupy Orders.

Rent forbearance. Many tenants are facing financial hardship and do not have sufficient income to pay their rent. The New York State Senate recently introduced a bill[2] which would suspend rent payments for certain residential tenants facing unemployment  and small business commercial tenants that were forced to close, and certain mortgage payments for landlords of any such tenants for 90 days.

Legal remedies. The Executive Orders currently prohibit landlords and tenants from enforcing most legal actions against each other. New York State county court clerks are forbidden from accepting filings for all non-essential matters. Civil and Housing Courts are only permitted to address landlord lockouts (including essential services reductions), serious code violations, serious repair orders and post-eviction relief[3]. Landlords may serve rent demands on tenants. But they are forbidden from bringing an eviction proceeding against any residential or commercial tenant for 90 days[4] (that is, until June 20, 2020). Additionally, the Executive Orders prevent lenders from bringing a foreclosure action against any residential or commercial property for the same 90-day period.

What to do. Landlords and tenants should review their leases immediately in order to assess their rights and responsibilities. Now is the time to review force majeure clauses, essential service provisions, casualty and condemnation clauses, and other critical language. Landlords and tenants should also review their insurance policies (including business interruption insurance and contingent business interruption insurance). Your lawyer can help you interpret the language, as well as evaluate remedies under the common law doctrines of impossibility of performance, impracticability and frustration of purpose.

The Frankfurt Kurnit Real Estate Group is available to assist clients in reviewing their leases, insurance policies and the applicable laws and Executive Orders. We regularly advise on rent abatement, forbearance and deferral requests. We will continue to monitor developments and update you as circumstances change. If you have any questions about the Executive Orders discussed in this alert, or any other real estate questions, please contact our Real Estate Group. 

[1] New York State Executive Order No. 202.3

[2] New York State Executive Order No. 202.5

[3] New York State Executive Order No. 202.5

[4] New York State Executive Order No. 202.7

[5] The New York State Liquor Authority issued guidance for liquor licensees.

[6] New York State Executive Order No. 202.8

[7] The New York State Department of Economic Development issued guidance and a specific list of “essential  businesses.”

[8] New York State Executive Order No. 202.10

[9] New York State Executive Order No. 202.11

[10] New York State Senate Bill 8125

[11] New York State Chief Administrative Judge Lawrence K. Marks Administrative Order No. 78/20

[12] New York State Executive Order No. 202.8