Guaranty Law Held Unconstitutional

New York Real Estate Journal recently published an article authored by Olshan Real Estate partner Thomas Kearns and Litigation counsel Joseph Weiner entitled, “Guaranty Law Held Unconstitutional” (subscription required). The article discusses Melendez v. City of New York, in which the Southern District of New York declared unconstitutional N.Y.C. Admin. Code § 22-1005, a COVID-era law enacted in May 2020 that rendered personal guaranties for certain kinds of commercial leases unenforceable if the tenant’s default occurred between March 7, 2020 and June 30, 2021. After the SDNY initially granted New York City’s motion to dismiss, the Second Circuit reversed and sent the case back to the SDNY, believing certain features of the law to be problematic under the Contract Clause. “In particular,” the authors explain, “the Second Circuit noted that the law (i) is not temporary, but permanently extinguishes the covered obligations, (ii) is not conditioned on whether the tenant had to shut down its business, or whether the business will reopen, (iii) allocates the expense to a discrete group (landlords), (iv) is not conditioned on need, and (v) does not compensate landlords for their losses.” Following remand, the SDNY granted the plaintiffs’ motion and declared the law unconstitutional. “We expect the city to appeal the SDNY ruling,” the authors note. They conclude that, “Although the federal court’s decision is not binding on state courts, it is ‘useful and persuasive authority.’"