Commercial Landlords Can Enforce Covid Guarantees: Court

A federal judge sided with commercial landlords Friday, ruling that a Covid-era protection for retail tenants is unconstitutional.

For owners whose tenants fell behind on rent during the pandemic, the decision offers a chance to recoup some of that lost money.

At issue was a city law passed two months into the pandemic that barred landlords from going after tenants’ personal assets to recover unpaid rent.

Elias Bochner, landlord to a Chelsea burger joint that went under during Covid, and other commercial property owners sued the city over the rule in 2020. He claimed it violated the U.S. Constitution’s Contract Clause, which bars governments from making laws that interfere with private contracts.

The city initially won a motion to dismiss that suit. Judge Ronnie Abrams ruled that case law gave “substantial deference” to policymakers working in the public interest, as was the case during the pandemic.

Landlords appealed and won a favorable ruling in October 2021. The court identified several “serious concerns” that the guaranty law was not a reasonable means to uphold public interest, as required by the Contract Clause, and sent the case back to Judge Abrams.

On the last day of March, Abrams ruled that the city did not produce enough evidence to show the guaranty law “is reasonably tailored to accomplish its legitimate policy goals.”

Different landlords filed a state lawsuit to challenge the city law, which was sponsored by City Council member Carlina Rivera of Manhattan, but lost on appeal.

For commercial landlords whose tenants fell behind on rent from March 2020 to June 2021 and whose leases held them personally liable for that debt, the ruling is a huge win. Those landlords may now be able to go after those tenants’ assets, said Sherwin Belkin of the law firm Belkin Burden Goldman.

The Real Estate Board of New York celebrated the decision as precedent-setting for commercial real estate.

“We applaud the Court’s thoughtful and meticulous review of the record and believe this litigation will have important precedential value,” said the group’s general counsel, Carl Hum.