Personal Liability on Commercial Property
Updated: Feb 16, 2021
The New York City Council has enacted legislation to protect people from personal liability when it comes to commercial leases if the COVID-19 Coronavirus Pandemic impacted the business that is occupying the space.
One of the biggest concerns for people and government officials during the pandemic crisis has been how people and businesses would pay their rent. Unemployment skyrocketed due to the pandemic, and many businesses, including all businesses that were deemed to be “non-essential,” had to shut down. Without business or personal income, paying rent has become difficult, if not impossible, for many people, families, and businesses.
Legal Protections Have Been Enacted to Prevent Evictions and Foreclosures
Legal protections have been put in place to cease all evictions and alleviate people from the stress of paying their rent while no money was coming in. To account for the lack of rental income, the federal government passed laws to help people who have federally backed loans. Banks were working with people who were unable to make their mortgage payments.
These provisions to put off payment were not open-ended, and banks are looking for owners to pay their mortgages. In turn, landlords are looking to collect rent on the spaces they own. The issue is that even as businesses begin to reopen, the pandemic continues to be a problem around the city and the world. People are not going out and spending money as they had before the pandemic, and many businesses are still struggling.
The New York City Council Enacted Changes to Protect Individuals from Personal Liability on Commercial Spaces
To alleviate the stress on businesses that continue to struggle and adapt to this “new normal,” the New York City Council enacted changes to protect individuals from personal liability on commercial spaces.
The law states that “upon the occurrence of a default or other event, wholly or partially personally liable for payment of rent, utility expenses or taxes owed by the tenant under such agreement, or fees relating to routine building maintenance owed by the tenant under such agreement, shall not be enforceable” of the tenant can meet certain criteria.
The individuals must meet one of the following three criteria listed in the law:
The tenant was required to cease serving patrons food or beverage for on-premises consumption or to cease operation under executive order number 202.3 issued by the governor on March 16, 2020; OR
The tenant was a non-essential retail establishment subject to in-person limitations under guidance issued by the New York state department of economic development pursuant to executive order number 202.6 issued by the governor on March 18, 2020; OR
The tenant was required to close to members of the public under executive order number 202.7.
The Law is Specific to People Who were Directly Impacted by Orders to Close Due to COVID-19
The law is very clear that the inability to pay the rent must be related to the business being ordered to shut down due to the pandemic and out of the tenant’s control to generate the income needed to pay expenses, including rent.
The law also goes on to prohibit any harassment by landlords of tenants to collect rent. Harassment is defined as any action that would cause a person to decide to vacate the property or surrender or waive any rights granted by the lease or the law to protect the tenant. The law goes on to call out 15 different forms of harassment, and partially lists types of harassment to include:
Using force or making an expressed or perceived threat of the use of force;
Causing interruptions or discontinuation of essential services, such as electricity or heat. This also includes causing extended interruptions of essential services or interruptions that would impact the running of the business;
Filing frivolous lawsuits against the tenant;
Removing a tenant’s personal property from the location;
Making any threats against anyone based on their age, gender, religion, citizenship, etc.
In enacting these changes, New York City is seeking to protect businesses that cannot pay their rent for reasons outside of their control due to the pandemic and, in doing so, allowing businesses to continue where they would otherwise fail.