Guaranty Law is Unconstitutional

Hot off the presses!

The NYC Guaranty Law, on March 31, 2023, was found unconstitutional after the matter was remanded to the Southern District Court by the Second Circuit, in the case of Melendez v. City of New York.

To sum up the 33-page decision, the Court granted the plaintiff summary judgment and held that: “The City has proven unable to provide record evidence to answer the “five serious concerns about [the Guaranty Law] being a reasonable and appropriate means to pursue the professed public purpose,” as the Second Circuit instructed.” The Court therefore “concludes that the Law violates the Contracts Clause by rendering the guaranty clauses in Plaintiffs’ commercial leases unenforceable for unpaid rent during the covered period, March 7, 2020 and June 30, 2021.”

As we know, the New York City Guaranty Law, voided a crucial provision negotiated into commercial leases, and it did so irrespective of a showing that the affected guarantor owned the business, was in financial need or that the owner would reopen the business following the pandemic. The law also ignored the financial needs and expectations that induced the landlord to enter the Contract/Lease with the Commercial Tenant and guarantor in the first instance. The law however, has been found unconstitutional, as it violates the Contract Clause of the United States Constitution.

What is the take away here? Landlords may enforce the guaranties tied to their commercial leases, affected by Covid, for the Covid period from March 7, 2020 – June 30, 2021. Guarantors remain liable for the rent due that was not paid during the Covid period. There is no longer protection afforded to the guarantors during this period. Lawsuits can still be commenced for monies that remain due and owing during this time, as the statute of limitations on a contract is six years. There is still time to sue. If a claim has been dismissed due to the unconstitutional Guaranty Law, a motion to renew may be in order. Terms of guaranties may vary however, and must be reviewed to determine the proper course and applicability. Please feel to contact our team to discuss your options. However, for now, please take a moment to read the well written reasoned decision, just issued today!