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New York

Court reverses NYC law protecting non-paying businesses

City Council’s suspension of personal liability clauses deemed unconstitutional

NYC Mayor Bill de Blasio (Getty Images, iStock)
NYC Mayor Bill de Blasio (Getty Images, iStock)

A federal appeals court has ruled in favor of two small landlords who sued New York City in July over a package of hastily passed protections for retail tenants.

The legislation at the heart of the case was signed by Mayor Bill de Blasio in May 2020 to shield certain retail tenants from their rent-seeking landlords. One temporarily bars landlords from going after the personal assets of restaurant and store owners who owe rent. Another forbids pressuring tenants affected by Covid.

The lawsuit alleged that the legislation denies landlords’ First Amendment rights and violates the Contract Clause of the Constitution, as well as some laws.

The appellate judges ruled that while the bills do not violate First and 14th amendment rights, there is “a plausible Contracts Clause challenge to the Guaranty Law.” Under the legislation, landlords cannot enforce personal liability clauses in leases abandoned by some tenants. Such terms, common in commercial lease agreements, allow landlords to pursue the personal assets of tenants whose businesses owe rent.

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The legislation was introduced by Manhattan Democrat Carlina Rivera, prompting immediate questions about its constitutionality. Several City Council members voted no, saying the government could not interfere with private contracts.

But for small businesses and their trade groups, such as the New York City Hospitality Alliance, the legislation was cause for celebration. The laws attempted to limit the protection to smaller businesses.

The de Blasio administration defended the law and won the first round in December, when U.S. District Judge Ronnie Abrams ruled the laws constitutional.

Abrams wrote that because landlords could still demand rent, their First Amendment rights were intact. There was no contract clause violation, she ruled, because the law was “reasonable, necessary, and passed to advance a legitimate public interest.”

The plaintiffs were Marcia Melendez and Ling Yang, first-generation immigrants who because of non-paying commercial tenants were struggling to make their mortgage payments.

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Bill De BlasioCity CouncilCoronavirusReal Estate Lawsuits