May 27th, 2020

NYC COVID-19 Relief Package Will Help Restaurants and Certain Small Commercial Tenants

On May 26, 2020, New York City Mayor Bill de Blasio enacted legislation to help certain small businesses and restaurants in New York City that have been impacted by the COVID-19 pandemic. The NYC COVID-19 Relief Package (1) renders personal liability provisions in leases for commercial tenants impacted by COVID-19 unenforceable, (2) prohibits landlord harassment of commercial tenants impacted by COVID-19, (3) waives side walk café consent fees and (4) limits fees charged by third-party food delivery services. Here’s a summary of the benefits for commercial tenants and personal guarantors.

Certain personal liability provisions are now unenforceable. Individuals (other than tenants) who are personally liable under a commercial lease or other rental agreement for real property located within NYC are protected by a new law: The “Personal Liability Lease Law”[1] renders unenforceable any provision in a lease or rental agreement that provides for one or more natural persons who are not the tenant to become, after a default or other event occurring between March 7, 2020 and September 30, 2020, personally liable for rent, utilities, taxes or maintenance fees.

The Personal Liability Lease Law applies only to leases for commercial tenants impacted by COVID-19. Specifically, the law covers those commercial leases or other rental agreements where, as a result of Governor Cuomo’s Executive Orders, the tenant was:

1. a restaurant or bar and was therefore required to cease serving patrons food or beverage for on-premises consumption or a gym, fitness center or class, movie theatres, or facility authorized to conduct video lottery gaming or casino gaming and was therefore required to cease operation[2];

2. a non-essential retail establishment subject to in-person limitations[3]; or

3. required to close to members of the public[4] because it was a barbershop, hair salon, tattoo or piercing parlor or related personal care service (including a nail technician, cosmetologist, esthetician, electrolysis or laser hair removal service).

The Personal Liability Lease Law applies to individuals and does not cover entities. It is unclear whether the new law only applies to guarantees contained within the lease or rental agreement, or whether the law also contemplates stand-alone guarantees such as “good guy guarantees” entered into by individuals, as required by the terms of, and in connection with, a lease or rental agreement.

While the law is currently effective, and NYC landlords should comply with its terms, we note that the law may be vulnerable to a constitutional challenge: it arguably violates the Contract Clause of the United States Constitution[5] which prohibits states from enacting legislation that impairs the obligation of contract. We will monitor the law for developments.

Harassment of commercial tenants impacted by COVID-19. NYC’s Commercial Tenant Harassment Law[6] prohibits commercial landlords from engaging in any act or omission that would reasonably cause a commercial tenant to vacate its premises, or to surrender or waive any rights under a lease or other rental agreement or under applicable law, and includes a specific list of those acts or omissions that are deemed harassment. NYC’s COVID-19 Relief Package adds the act of attempting to enforce a personal liability provision that the landlord knows or reasonably should know is not enforceable pursuant to the new Personal Liability Lease Law[7] discussed above.

The new law also expanded the definition of tenant harassment to include harassment based on “the commercial tenant’s status as a person or business impacted by COVID-19, or the commercial tenant’s receipt of a rent concession or forbearance for any rent owed during the COVID-19 Period.”[8] The definition of illegal harassment under the Commercial Tenant Harassment Law continues to include harassment based on “such person’s actual or perceived age, race, creed, color, national origin, gender, disability, marital status, partnership status, caregiver status, uniformed service, sexual orientation, alienage or citizenship status, status as a victim of domestic violence[,] or status as a victim of sex offenses or stalking.”

A person is “impacted by COVID-19” if such person experiences any of the following:

1. is diagnosed with COVID-19 or are experiencing COVID-19 symptoms and seeking a medical diagnosis;

2. has a household member is diagnosed with COVID-19;

3. provides care for a family member or household member diagnosed with COVID-19;

4. has a household member for whom such person had primary caregiving responsibility was unable to attend school or another facility that was closed due to the “COVID-19 State Disaster Emergency”[9];

5.is unable to reach their place of business because of a quarantined imposed by the COVID-19 State Disaster Emergency or a self-quarantine advised by a health care provider;

6. becomes financially responsible for providing financial support for a household because the previous head of such household died from COVID-19; and

7. such person’s business is closed as a direct result of the COVID-19 State Disaster Emergency.

A business is “impacted by COVID-19” if:

1. it was subject to seating, occupancy or on-premises service limitations pursuant to Governor Cuomo’s or Mayor de Blasio’s Emergency Executive Orders during the COVID-19 Period; or

2. proximately caused by the COVID-19 State Disaster Emergency, such business’s revenues for any three-month period during the COVID-19 Period were less than 50% of its aggregate revenues during either (a) the same three-month period in 2019 or (b) the months of December 2019 through February 2020.

 

Penalties. A landlord found guilty of commercial tenant harassment will be subject to civil penalties of $10,000 to $50,000, and may have a restraining order issued against them or may not have their construction documents approved or permits renewed. A harassed commercial tenant will not be relieved of its obligation to pay rent, but the court may award such tenant injunctive relief, equitable relief, compensatory damages, punitive damages and reasonable attorneys’ fees and court costs.

Exclusion for lawful acts. Importantly, the lawful termination of a tenancy, lawful refusal to renew or extend a lease or other rental agreement, or lawful reentry and repossession of premises do not constitute commercial tenant harassment. Landlords and tenants trying to determine whether a tenant is entitled to protection from harassment because it is “impacted by COVID-19” or whether the landlord had a lawful right to act under the terms of the lease, rental agreement or statute -- should seek legal counsel.

Waiver of sidewalk café consent fees[10]. To help COVID-19-affected restaurants and sidewalk cafes safely reopen, the NYC COVID-19 Relief Package waives and refunds sidewalk café consent fees for (1) enclosed sidewalk café consents from March 1, 2020 until The City of New York Office Of The Mayor Emergency Executive Order No. 105 (April 4, 2020) expires, and (2) unenclosed sidewalk café consents from March 1, 2020 until February 28, 2021. The waiver does not apply to new sidewalk café consents filed on or after March 30, 2020.

Limits on fees charged by third-party food delivery services. Effective June 2, 2020, at any time during a declared emergency[11] and continuing for 90 days after the end of such emergency: third-party food delivery services are now prohibited from charging food establishments[12]:

1. any fee from for a telephone order if the call between such establishment and a customer does not result in an actual transaction during such call;

2. a delivery fee equal to more than 15% of the purchase price (excluding taxes and gratuities) of each online order; and

3. any fees (other than a delivery fee for the use of their service) greater than 5% of the purchase price of each online order.

Limiting these third-party delivery service fees will alleviate costs and help NYC restaurants recover from the COVID-19 crisis.  

Violations under clause (1) are subject a maximum fine of $500 and violations under clauses (2) or (3) are subject to a maximum fine of $1,000 per violation and accrue daily for each day and for each food service establishment.

The Frankfurt Kurnit Real Estate Group is monitoring federal, state and local developments that affect owners and tenants. Please contact our Real Estate Group if you have any questions about the new NYC legislation discussed in this alert, or any other real estate questions.

[1] N.Y.C. Admin. Code § 22-1005

[2] Governor Cuomo’s Executive Order 202.3 (March 15, 2020)

[3] Governor Cuomo’s Executive Order 202.6 (March 18, 2020). The New York State Department of Economic Development issued guidance and a specific list of “essential businesses.”

[4] Governor Cuomo’s Executive Order 202.7 (March 19, 2020)

[5] U.S.C.A. Art. 1, §10, Clause 1

[6] N.Y.C. Admin. Code § 22-902

[7] N.Y.C. Admin. Code § 22-1005

[8] The “COVID-19 Period” started March 7, 2020 and runs until the later of  (1) the end of the first month that commences after the expiration of the eviction moratorium established under the Governor Cuomo’s Executive Order 202.8 (March 20, 2020), and extended thereafter, (2) the end of the first month that commences after the expiration of the moratorium on certain residential evictions set forth in Section 4024 of the Coronavirus Aid, Relief, and Economic Security Act (March 27, 2020) as may be amended, or (3) September 30, 2020.

[9] Governor Cuomo’s Executive Order 202 (March 7, 2020)

[10]  N.Y.C. Council Intro. No. 1916-2020

[11] A “declared emergency” is a period in which a NYS and/or NYC state of emergency has been declared and all food service establishments in NYC are prohibited from selling food for on-premises consumption.

[12] N.Y.C. Admin. Code § 22-845:848