Thomas Kearns and Joseph Weiner Publish Article in NYREJ on NYC’s Warranty Regulation
New York Actual Property Journal printed an article on Could 30 authored by Olshan Actual Property accomplice Thomas Kearns and Litigation counsel Joseph Weiner entitled “Warranty Regulation Held Unconstitutional” (by subscription).
On March 31, 2023, in Melendez v. Metropolis of New York, the Southern District of New York declared N.Y.C. Admin. Code § 22-1005 unconstitutional. That COVID-era legislation – enacted in Could 2020 – rendered private guaranties for sure varieties of business leases unenforceable if the tenant’s default occurred between March 7, 2020 and June 30, 2021. Three landlords commenced the motion in July 2020 requesting that the courtroom declare the legislation unconstitutional underneath the Structure’s Contract Clause, which bars the federal government from impairing sure non-public contracts. The SDNY initially granted New York Metropolis’s movement to dismiss the declare, largely based mostly on its willpower that it was not the courtroom’s position to second-guess the legislature. The Second Circuit reversed, sending the case again to the SDNY “to permit the events to develop the document additional” on sure options of the legislation that the Second Circuit believed to be problematic underneath the Contract Clause, together with whether or not it’s a “affordable and acceptable” means to advance a professional curiosity of town. Specifically, the Second Circuit famous that the legislation (i) shouldn’t be non permanent, however completely extinguishes the coated obligations, (ii) shouldn’t be conditioned on whether or not the tenant needed to shut down its enterprise, or whether or not the enterprise will reopen, (iii) allocates the expense to a discrete group (landlords), (iv) shouldn’t be conditioned on want, and (v) doesn’t compensate landlords for his or her losses.
Following remand, the plaintiffs moved for abstract judgment, arguing that the Second Circuit’s opinion was clear and that there have been no details that could possibly be uncovered throughout discovery that would alter its conclusion. Following discovery, briefing, and oral argument, the SDNY granted the plaintiffs’ movement and declared the legislation unconstitutional, ruling that town had did not submit any details addressing the Second Circuit’s issues. We anticipate town to attraction the SDNY ruling.
The legislation was unusually particular in that it was restricted to “pure individuals” who weren’t the tenant and to cases the place (i) the tenant was required to stop serving patrons meals or drinks for on-premises consumption or was required to stop operation underneath the governor’s government orders; or (ii) the tenant was a “non-essential retail institution” topic to in individual limitations issued by the governor, and in every case, the default occurred between March 2, 2020 and June 30, 2021.
Though the federal courtroom’s determination shouldn’t be binding on state courts, it’s “helpful and persuasive authority,” which the state courts will probably observe. We due to this fact anticipate that many industrial landlords will search to get well from particular person guarantors who had been beforehand insulated from legal responsibility by the warranty legislation.
Thomas Kearns is a accomplice in the true property division and Joseph Weiner is counsel within the litigation division with Olshan Frome Wolosky LLP, New York, N.Y.
