Fair, Foul, or Simply Unconstitutional? Redux on Enforceability of Personal Guaranties During COVID
2.10.2025
The COVID-19 pandemic triggered a cascade of legal challenges, particularly concerning the enforceability of personal guaranties on commercial leases in New York City. In response to the economic hardships businesses faced, the New York City Administrative Code Section 22-1005 was enacted, effectively barring landlords from enforcing personal guaranties on certain commercial leases during a specified blackout period between March 7, 2020 and June 30, 2021.[i] While this regulation aimed to protect businesses, particularly small ones, from the devastating financial impacts of the pandemic, it has also raised significant legal questions of the regulation’s fairness to landlords. In 2021, the landmark case Melendez v. City of New York brought these issues to the forefront when the U.S. Court of Appeals, Second Circuit conducted a balancing test to determine if the guaranty law violated the contracts clause of the U.S. Constitution and identified five features of serious concern that precluded dismissal.[ii] On remand, the U.S. Court for the Southern District Court of New York concluded that the regulation did not constitute a reasonable and appropriate means of advancing the city’s legitimate public purpose and was thus unconstitutional.[iii]
This article serves as a redux of an article appearing in the May 2022 issue of NYLitigator,[iv] providing an updated analysis of how New York State courts have since addressed the law, the evolving judicial reasoning and what stakeholders can expect moving forward. Through an examination of recent case law, we will explore whether the enforcement of personal guarantees during the pandemic remains fair, foul or simply unconstitutional.
Constitutional Crossroad
The reasoning behind the federal courts’ refusal to enforce the guaranty law on constitutional grounds is compelling. One of the Second Circuit’s central concerns was the law’s permanent impairment of contractual obligations. The federal appellate court was particularly troubled by the fact that the guaranty law “does not simply defer a landlord’s ability to enforce a personal guaranty; it forever extinguishes it,” which the court found to be a severe and disproportionate measure, even during a crisis.[v] This permanence contrasted sharply with the temporary nature of the public health emergency that justified the law’s enactment, ultimately tipping the scales against its constitutionality.[vi] As Justice Arlene Bluth of the Supreme Court, New York County opined: “This Court sees no reason to depart from the extremely well-reasoned and logical determination made in Melendez. That this issue may be considered by various trial and appellate courts in the future if of no moment. Plaintiff should not have to wait around indefinitely based on the premise that some other case may break in defendants’ favor.”[vii]
Nonetheless, the federal district court’s decision on remand finding the regulation unconstitutional in Melendez has not been uniformly adopted in the New York State courts.[viii] Some state court decisions have sidestepped the issue, whereas others have imposed stringent procedural burdens on litigants attempting to make constitutionality a linchpin of their case under the guaranty law. This has left commercial landlords and tenants in a precarious position, as the legal landscape remains unsettled and the fate of the guaranty law continues to be a contentious issue.
Timing Is Still Everything
The Appellate Division, First Department decision in Tamar Equities Corp. v. Signature Barbershop 33 Inc. declared “we need not and do not address the parties’ constitutional arguments,” and instead focused on how the timing of tenant defaults interacts with the law’s protections. [ix]
The First Department in Tamar Equities addressed a critical question: whether the guaranty law’s protections apply to rent defaults that began within the timeframe of the guaranty law but did not become due until outside of the guaranty law period. The landlord sought to enforce a guaranty for rent that accrued after the guaranty law’s protection period had ended. The tenant had abandoned the premises during the protection period without landlord’s consent, and the landlord pursued the guaranty for unpaid rent accruing in the months following this departure. [x]
In Tamar, the court ruled that the guaranty law does not provide indefinite protection to guarantors and that landlords can enforce guaranties for rent accrued after June 30, 2021, when the protection period ended.[xi] This decision underscores that the guaranty law’s impact is temporally limited, ensuring that landlords retain the right to recover unpaid rent for periods beyond the statute’s defined timeframe. The court’s decision was crucial because it distinguished between defaults that occurred during the protection period and rent obligations that arose afterward.
The appellate court made it clear that the guaranty law’s protections are not absolute and do not indefinitely shield guarantors from all obligations under a lease. Based on prior precedent, the First Department ruled that “the statute bars enforcement only for defaults occurring within the protection period,” thereby allowing the landlord to enforce the guaranty for each monthly rental obligation as it became due after June 30, 2021.[xii] This decision emphasized that while the law provides substantial protections for tenants and guarantors during a specific time frame, it does not offer a permanent escape from all rental obligations. The importance of Tamar Equities lies in its clear delineation of the guaranty law’s temporal scope. This ruling provides landlords with a clearer pathway for recovering rent that accrues after the protection period, offering some balance in a legal landscape heavily tilted in favor of tenants during the pandemic.
Misinterpretations and Misapplications: How Tenants and Guarantors Misread the Guaranty Law
Separate and apart from the law’s constitutional validity, numerous guarantors and tenants have sought to interpret the guaranty law in ways that expand its protections beyond the intended scope. These interpretations often misalign with the law’s actual language and restricted purpose. In Knickerbocker Retail LLC v. Bruckner Forever Young Social Adult Day Care Inc., the Appellate Division, First Department clarified that the guaranty law does not extend protection to circumstances outside the three categories identified in the regulation itself.[xiii] Those categories are limited by the scope of the executive orders they reference, and unless a commercial tenant is covered by those executive orders, the regulation “does not apply” to defendant guarantors. By a careful reading of the executive orders themselves, the court determined that the commercial tenant – in this case, an adult daycare center – fell outside the scope of the guaranty law. [xiv]
Triad 11 E., LLC v. Midoriya, Inc. demonstrates another attempt to broaden the application of the guaranty law. In this case, defendants, a commercial tenant and its personal guarantor, argued that their specific circumstances – operating a grocery store and deli – qualified them for the protections of the guaranty law.[xv] Defendants claimed that their business was forced to close or modify its operations under Governor Cuomo’s Executive Order 202.3.[xvi] Construing the executive order literally and in accordance with its terms, the First Department affirmed the lower court’s refusal to dismiss the complaint on the basis of the guaranty law, holding that “defendant tenant ran a grocery store and deli, which did not fall within the category of businesses covered by Administrative Code § 22–1005 or Executive Order 202.3 – that is, establishments that served food for consumption on the premises.”
Thus, as stated in the previous NYLitigator article on this topic, “due to the specific limitations of the executive orders it references, Section 22-1005 therefore applies mainly to restaurants, bars, gyms, fitness centers, movie theaters, non-essential retail stores, barber shops, hair salons, nail salons, tattoo or piercing parlors and related personal care services in New York City during the height of COVID-19.”[xvii] Landlords in Knickerbocker and Triad both achieved victory by demonstrating that the guaranty law could not be expanded to cover the defendants in those cases. The courts’ decisions, and presumably the briefs that engendered them, made no mention of constitutional concerns.
Foul Pursuit: The Constitutional Argument Falls Short
The evolving legal landscape surrounding New York City’s guaranty law underscores the importance of strategic navigation rather than constitutional confrontation. One of the most significant procedural hurdles arises from the requirement set forth in cases like 513 West 26th Realty LLC v. George Billis Galleries, Inc., where the Appellate Division, First Department directed the plaintiff to serve notice on the City of New York under CPLR 1012(b)(2) so that the city could intervene in support of the guaranty law’s constitutionality. [xviii]
Challenging the guaranty law on constitutional grounds thus can be a risky strategy. For landlords, a requirement to invite the city to join the suit adds an unwelcome layer of complexity and delay to the litigation process. To save all parties the time and frustration, practitioners can instead focus on the nuances of statutory interpretation, particularly concerning the specific timing of defaults and the limited reach of the law to only those tenants affected by certain executive orders. The judiciary has shown a preference for resolving disputes on these narrower grounds, allowing courts to avoid thorny constitutional questions.
In light of these post-Melendez legal developments, landlords must now adapt their strategies. The key to success lies in carefully navigating the precise limitations of the law with respect to scope and timing. By doing so, practitioners can better advocate for their clients within the established legal framework, achieving resolutions that are both predictable and equitable in a post-pandemic landscape.
This article appears in a current issue of NYLitigator, a publication of the Commercial and Federal Litigation Section. For more information visit NYSBA.ORG/COMFED.
As of counsel and trial attorney for Valiotis & Associates PLLC in New York City, Katharine Santos has handled numerous CPLR 3213 proceedings on behalf of landlords against commercial lease guarantors. She is admitted to practice in New York State, the U.S. District Courts for the Southern and Eastern Districts of New York, the U.S. Courts of Appeals for the Second and Federal Circuits and the U.S. Supreme Court.
D’Shandi Coombs has a master’s of urban planning from New York University. She studies at Brooklyn Law School
Endnotes
2 Melendez v. City of New York, 16 F.4th 992, 1038-46 (2d Cir. 2021).
[iii] Melendez v. City of New York, 668 F. Supp. 3d 184, 199, 207 (S.D.N.Y. 2023).
[iv] Katharine Santos and David Yu, Fair or Foul?: NYC’s Regulation Barring Enforcement of Personal Guaranties for COVID-Era Rents, NYLitigator, vol. 27, no. 1 (Spring 2022).
[v] Melendez, 16 F. 4th at 1004.
[vi] Id. at 1038.
[vii] Judson Realty LLC v. Hayward Luxury, Inc., No. 159692/2021, 2024 WL 1008536, at *5 (Sup. Ct., N.Y. Co. Mar. 08, 2024).
[viii] 43 Orchard Realty LLC v. Baruch Chicken LLC, No. 655760/2021, 2023 WL 8272817, at *1 (Sup. Ct., N.Y. Co. Oct. 09, 2023) (“The decision in Melendez does not bind the courts of New York State”) (Lebovits, J.).
[ix] Tamar Equities Corp. v. Signature Barbershop 33 Inc., 223 A.D.3d 421, 425 (2024).
[x] Id. at 422.
[xi] Id. at 424.
[xii] Id. at 424 (internal quotations and citations omitted).
[xiii] Knickerbocker Retail LLC v. Bruckner Forever Young Social Adult Day Care Inc., 204 A.D.3d 536, 538 (2022).
[xiv] Id.
[xv] Triad 11E., LLC v. Midoriya, Inc., 216 A.D.3d 540 (2023).
[xvi] Id. at 541.
[xvii] Santos & Yu, supra note 4, at p. 14.
[xviii] 513 West 26th Realty LLC v. George Billis Galleries, Inc., 220 A.D.3d 525 (2023).
