The Second Circuit Court of Appeals ruled on October 28, 2021 that the Federal Judge presiding over the case Melendez v. City of New York erred in dismissing the Federal Court Action brought by various landlords challenging NYC COVID Laws that adversely impacted landlords. The landlord’s lawsuit sought various relief, including a temporary injunction barring enforcing, among other things, the Commercial Guaranty Law (§22-1005), otherwise known as “the Guaranty Law,” as violating the Commerce Clause.
Although a portion of the action was dismissed, in reversing and remanding the case back to the lower court, the Court of Appeals held that the plaintiff landlords did establish a plausible cause of action alleging a “significant impairment of contract.” The Federal Appeals panel held:
“The law effectively repudiates those guarantor debts rendering them permanently and completely unenforceable. This is certainly a substantial impairment of contract”.
The Court found that the Guaranty Law’s preventing a landlord from collecting rents that accrued during the period from March 7, 2020 through June 30, 2021, imposed a substantial impairment of the contractual guaranty. The Court also noted that the Guaranty Law “substantially undermines the landlord’s contractual bargain, interferes with his reasonable expectations and prevents him from safeguarding or ever reinstating rights which he was entitled during a sixteen-month period.”
As a result of Court of Appeals reinstating the temporary injunction staying enforcement of the Guaranty Law, commerical property owners may pursue monetary claims against a guarantor for rents that accumulated during March 7, 2020 through June 30, 2021, without fear of violating the Commercial Harassment Law. Please note that other pandemic related harassment laws remain in effect and are being challenged.
This decision validates the legal arguments Borah, Goldstein has been asserting on behalf of our clients in breach of lease and guaranty cases “The Second Circuit’s decision on Melendez affirms our repeated position that the City and State have overstepped in their response to COVID related landlord-tenant matters” said Robert Goldstein, Borah, Goldstein’s managing partner. “There is still a lot of work to be done to protect the rights and interests of landlords who have been impacted by COVID. Having heard the news of the Melendez decision, many clients are now looking to enforce the rights they had been previously denied.”
Borah, Goldstein continues to closely monitor the ever-changing judicial and legislative developments regarding COVID and other concerns that impact the real estate industry. If you have questions about these changes and your rights, please contact us.