A Win for Now
Continued Protection for Certain Commercial Tenants of NYC
In September of 2020, Manhattan Democrat City Council Member, Carlina Rivera, introduced legislation “Local Law 55” that temporarily suspended personal liability provisions in leases of certain businesses that had been impacted by COVID. Businesses included in these protections include businesses such as restaurants and bars, gyms, hair salons, and many other personal care service providers. The legislation was enacted in May of 2020 and set to expire in March of 2021.
Landlords have since challenged the law as unconstitutional, claiming that this legislation interferes with contract obligations, as prohibited by the U.S. Constitution's contracts clause. A federal court ruled in October 2021 that the legislation could be challenged under the contracts clause. However, the NY state appeals court did not comment on that ruling in their recent decision upholding the commercial tenant protection law. Appellate division judges ruled in favor of Zavo Restaurant & Lounge, upholding the city law pandemic protections for certain commercial tenants.
The landlord property owner, Olshan Properties, had filed the case despite the new city law and attempted to go after the personal assets of Ilya and Michael Zavolunov, because they had personally guaranteed the lease. The tenants were forced to close their restaurant, ZAVO Restaurant & Lounge, in March 2020 due to the COVID-19 pandemic. The Zavolunovs defaulted on their lease in March of 2020 and vacated the property in August of 2020. Olshan Properties argued in court that Zavo Restaurant & Lounge was having issues paying their rent before the pandemic hit, therefore they should not be considered a protected commercial tenant under the city law. However, the appellate court did not find that argument to be credible.
Even though the state appeals court has upheld the city law protections for commercial tenants, it is likely that Olshan Properties will appeal this recent decision. Additionally, with a separate challenge ongoing in Federal court on the constitutionality of the law, it is likely that the city law could be struck down as unconstitutional for interfering with contractual obligations. The future of Local Law 55's protections is unsure, but for now it appears that certain commercial tenants like the Zavolunovs are protected from personal liability.