City measure to bar landlords from targeting retailers’ assets could face legal challenge

City legislation that temporarily bars landlords from going after restaurant and retailers’ personal assets may face another legal hurdle.

Last week, the City Council passed a bill that suspends the enforcement of personal liability provisions in commercial leases or rental agreements for a default that occurs between March 7 and Sept. 30.

The measure is aimed at shielding owners of restaurants, bars and nonessential retailers and businesses from financial ruin due to Covid-19. Under the bill, trying to enforce personal liability provisions is considered a form of harassment.

Mayor Bill de Blasio is expected to sign the bill into law next week.

But some opponents, and even some council members, have questioned the city’s authority to interfere in private contracts. Real estate attorneys have also pointed to the fact that personal liability provisions are typically included as a separate guaranty signed by the tenant — not as something embedded in a lease agreement. For this reason, the measure’s phrasing could open the door for legal challenges.

“Most guaranties are not provisions of leases at all, but are independent instruments that can be sued on separately,” said Maxwell Breed, a partner at Warshaw Burstein. “It doesn’t seem as if the bill accomplishes what it is trying to accomplish.”

A representative for Councilmember Carlina Rivera, the bill’s sponsor, didn’t immediately return a request seeking comment.

Patrick O’Sullivan, a partner with Herrick’s real estate department, said the Council possibly intended “rental agreements” to serve as a catchall for separate guaranties — though intention doesn’t preclude litigation.

“Is that an ‘other rental agreement’? I think that’s unclear,” he said. “Given the testimony, and what the Council is trying to accomplish, they were trying to get to these other documents.”

Write to Kathryn Brenzel at kathryn@therealdeal.com