Legal Analysts

Showing posts with label Commercial Real Estate. Show all posts
Showing posts with label Commercial Real Estate. Show all posts

Wednesday, March 03, 2021

The Pitfalls of a Guaranty on your Next Commercial Lease

Thursday, May 21, 2020

Commercial Personal Guaranties Deemed Unenforceable in NYC Council’s COVID-19 Relief Bill – Litigation to Follow if Enacted

On May 13, 2020, the NYC Council approved Int. No. 1932-A, which makes substantial changes to personal guaranties in commercial leases. The bill is on the Mayor’s desk to be enacted.

The bill’s purpose is to provide relief to NYC commercial tenants impacted by COVID-19. It temporarily prohibits the enforcement of personal liability provisions in commercial leases or rental agreements. It would amend the Administrative Code of the City of New York by adding Section 22-1005 and adding Paragraph 14 to Subdivision a of section 22-902 of the NYC Administrative Code.

If enacted, the bill would render guarantee provisions unenforceable against natural persons who are not a tenant in commercial leases or other rental real property. The law would only impact liability for the payment of rent and other charges caused by an occurrence of default, and subject to the following conditions:
1. The tenant must satisfy at least one of the following:
a)     The tenant was required to cease serving patrons food or beverage for on-premises consumption or to cease operation under EO 202.3;
b)     The tenant was a non-essential retail establishment subject to in-person limitations under guidance issued by the NYS Department of Economic Development pursuant to EO 202.6; or
c)     The tenant was required to close to members of the public under EO 202.7; and

2. The default or other event which caused the natural person to become personally liable for such obligation occurred between March 7, 2020 and September 30, 2020, inclusive.

Under the bill, an attempt to enforce a personal liability provision that the landlord knows or reasonably should know is unenforceable, pursuant to the above, shall be deemed commercial tenant harassment, which could result in compensatory and punitive damages and attorneys’ fees and court costs. See N.Y.C. Admin. Code § 22-903.

Sounds too good to be true for many tenants and often when it’s too good to be true, it’s untrue. Expect this law to be challenged on constitutional grounds should it be enacted. Specifically, the bill seems to impair the Contracts Clause of the United States Constitution because it retroactively affects personal guaranties entered into prior to the bill’s passing. For such a claim to succeed, the initial inquiry under the impairment of contracts clause contains three components:
  1. Whether there is a contractual relationship;
  2. Whether a change in law impairs that contractual relationship; and
  3. Whether the impairment is substantial. U.S.C.A. Const. Art. 1, § 10, cl. 1; American Economy Ins. Co. v. State, 30 N.Y.3d 136 (2017).
While tenants will surely argue that the bill doesn’t substantially impair the parties’ contractual relationship, as the bill only covers rent and payments for the period of March 7, 2020 to September 30, 2020, landlords will counter that the personal guarantee was a material term of the lease and a substantial reason that the landlord agreed to enter into the contract.

For analogy, the Court of Appeals has previously struck down similar government interference in contacts. In Patterson v. Carey, the Court of Appeals struck down a law which curtailed toll authority bondholders’ ability to increase their tolls for Jones Beach State Parkway on constitutional grounds. 41 N.Y.2d 714 (1977). 

If the NYC bill passes, it would likely undergo similar challenges and review as the law in Patterson and be deemed unconstitutional. The bill’s impairment to contractual rights agreed upon by landlords and guarantors would be substantial, especially considering that the bill does not merely delay a landlord’s right to enforce the guarantee during the period stated in the bill, it extinguishes it altogether.

Mayor DeBlasio has until June 12, 2020 to either sign, veto, or do nothing. If the Mayor signs the bill or does nothing, the bill will automatically become law. If the Mayor vetoes the bill, it is sent back to the Council. The Council can then override the Mayor’s veto with a 2/3 vote.

In the meantime, both landlords and tenants should contact their attorneys to ensure that their interests are protected and to prepare for expected lawsuits to follow. For ideas on how to creatively resolve lease issues due to coronavirus and for tips on important lease provisions when renegotiating, listen to our podcasts HERE and HERE.

Thursday, March 26, 2020

Podcast | Creative Lease Workout Options

Latest Podcast - Sharing creative lease solutions for commercial landlords and tenants who have lost revenue from coronavirus.

Click here to listen to podcast

Monday, March 23, 2020

Governor Cuomo Issues Statewide Moratorium on Commercial and Residential Evictions and Foreclosures

Governor Cuomo has consolidated the patchwork of local foreclosure and eviction laws bubbling up in the wake of the COVID-19 quarantines - and it's a big one.

There shall be no enforcement of either an an eviction of any tenant, residential or commercial, or a foreclosure of any residential or commercial property for a period of ninety days. 

Ninety days from the date of the Order puts us out to June 18, 2020.

One noteworthy aspect of this Order is its application to both residential and commercial properties. 

It is vital to note, however, that this does not mean you cannot be in default of your rent or mortgage for the ninety day period. It simply states that there shall be no enforcement of evictions or foreclosures. If you are delinquent on your rent or mortgage during the term of this order, your landlord or lender could commence an eviction or foreclosure proceeding after the order expires. 

The interplay of this Executive Order with Executive Order 202.9 (see our prior blog about that, here) creates an opportunity for borrowers to leverage a forbearance with their lender ensuring that they are not delinquent on their mortgage on June 18, 2020. 

Wednesday, March 18, 2020

Coronavirus Frustrates the Purpose of a Sit Down Restaurant's Lease, No?

Can a tenant terminate a lease because their purpose was frustrated?

We are getting contacted by restaurateurs who want to get out of their lease because they have to close their sit down / dine in operation and only offer delivery / take out, but can they?

The appellate courts have held that "[i]n order to invoke this defense, 'the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.'"

On that holding, the doctrine of frustration of purpose seems like it may get a restauranteur out of their lease.

In that holding, an office was able to terminate their lease because the CO didn't permit office use. Through analogizing to where an office tenant utilized frustration of purpose to get out of a lease because of an "inability to lawfully use the premises" based upon the CO, it's possible that a restaurateur can utilize the doctrine of frustration of purpose to terminate the lease where the purpose of the lease was to offer sit-down dining and now the same is not allowed as a matter of law.

However, appellate courts have also held that "a frustration of purpose defense 'is not available when the event preventing performance was foreseeable.'"

Expect a lot of restaurants to make this argument going forward and the issue of foreseeability will be everything if it gets to a trial. 

Thursday, March 12, 2020

Coronavirus & Commercial Leasing: What happens when your tenant doesn't pay rent?

Landlords - Here is your future:
  • There is a Coronavirus quarantine (voluntary or mandatory), which closes your property;
  • Tenant is forced to close;
  • Being closed, tenant makes no revenue or limited revenue from working from home;
  • Without revenue, tenant defaults on rent;
  • Without rent, landlord is now at risk of foreclosure and bankruptcy; and
  • Consequently, landlord will need to enforce its lease to stave off foreclosure and bankruptcy.

Can landlord successfully enforce its commercial lease?

If landlord seeks to enforce the lease, tenant will likely counterclaim for a rent abatement (reduction or elimination of rent) because of its inability to utilize the property. 

Who is going to win? 

The result likely depends on whether the lease has a clause called a "Force Majeure" or "Non-Performance" or something like that. 

This clause may read something like this: 
The Parties shall not be liable for any failure, delay or interruption in performing such Party's respective obligations hereunder due to causes or conditions beyond the control of such Party. Further, such Party shall not be liable unless the failure, delay or interruption shall result from the failure on the part of such Party to use reasonable care to prevent or reasonable efforts to cure such failure, delay or interruption.
"Causes or conditions beyond the control of such Party", shall mean and include acts of God ... war ... acts of third parties for which such Party is not responsible ... or any other condition or circumstances, whether similar to or different from the foregoing (it being agreed that the foregoing enumeration shall not limit or be characteristic of such conditions or circumstances) which is beyond the control of such Party or which could not be prevented or remedied by reasonable effort and at reasonable expense.
If the clause exists, the landlord has a shot at victory, but without the clause, the tenant will likely prevail, at least in part.

If the clause exists, the landlord's victory is dependent on the specific language of the clause. That is because of the rule that "[o]rdinarily, only if the force majeure clause specifically includes the event that actually prevents a party's performance will that party be excused." As a result, the language of the clause is everything.

Assuming the sample clause exists in the lease, here are the impending battlegrounds for ensuing litigation on enforcing the lease:

  • Is Coronavirus an act of god? 
  • If yes, is a quarantine resulting from Coronavirus also an act of god?
  • If no, is a quarantine resulting from Coronavirus an act of third-parties? 
  • If yes, did landlord undertake efforts to prevent the quarantine at the property? 
  • If yes, were those efforts reasonable? 
  • If no, did landlord undertake efforts to remedy the Coronavirus spread at the property?
  • If yes, were those efforts reasonable?  

We know that these lawsuits are coming and they are going to come fast. These lawsuits came after 9/11 - see One World Trade Center LLC v. Cantor Fitzgerald Securities. Only this time they are going to be everywhere because unlike 9/11, Coronavirus is everywhere.

Landlords - now is the time to ascertain your rights, determine your enforcement plan and create a contingency strategy. If you cannot enforce your lease, it's time to contact your lender and seek a forbearance (temporary reprieve from mortgage payments to avoid foreclosure). Doing nothing will create a strong likelihood of foreclosure and bankruptcy. It's time to act.


Friday, March 06, 2020

Real Estate Tips: Evaluating Projected Revenue

Tune in Sunday 3/8/20 at noon on LI News Radio 103.9 FM where Real Estate Investing Coach Andrew Lieb discusses projected revenue in real estate. Find out what information to request prior to negotiating terms of the deal. Discover tips to enhance future revenue and how to protect yourself from acquiring bad leases.

After the show airs - the Podcast will be available here. 

Monday, February 17, 2020

Real Estate Investing with Andrew Lieb - Guest Interview Opportunity

Tuesday, December 24, 2019

New Law: The Return of the Yellowstone Injunction

On December 20, 2019, A2554 was enacted to "[p]rohibit[] commercial leases from including a waiver of the right to a declaratory judgment action and states that the inclusion of such a waiver in a commercial lease shall be null and void as against public policy."

New Real Property Law section 235-h took effect immediately on signing.

Welcome back Yellowstone Injunctions - it's like you never left us in the commercial arena. Commercial tenants facing eviction should consult with an attorney to get an injunction immediately before they are evicted.

Friday, September 20, 2019

Closed Captioning On TVs In Public Accommodations Must Now Be Provided Upon Request

Televisions in an area of public accommodation that have a closed captioning feature must be enabled upon request. However, business owners will not be penalized if the television does not have a closed captioning feature.

The specific law S1650 signed by Governor Cuomo states:
“A place of public accommodation, resort or amusement. . . shall upon request be required to have closed captioning enabled on all televisions that are located in the public area . . . during regular business hours.”
Owners/Managers of public accommodations should train staff on this new requirement to avoid potential exposure to costly lawsuits.

Thursday, July 11, 2019

Freedom of Contract Ends Yellowstone Injunctions, What's Next?

Commercial landlords have been handed a major eviction victory by the state's highest court. However, this victory is only available to landlords who incorporates specific terms into their leases. Learn about those terms and you too can avoid a Yellowstone Injunction.

Read the full article by Andrew Lieb Esq. published in The Suffolk Lawyer here.

Monday, June 03, 2019

Real Estate Brokerage Regulatory Updates - 5/31/19 NYS Board Of Real Estate Meeting Summary

On 5/31/19 the NYS Board of Real Estate continued its mission of optimizing the regulation of real estate brokers in our state by holding its meeting in NYC, Rochester and Albany. To remind real estate brokers and salespersons, the public is welcome at these meetings where the public can bring comments from the floor. It's encouraged that Lieb School students attend these meetings to have your voices heard. 

"[T]he Board has general authority to promulgate rules and regulations affecting real estate brokers and salespersons in order to administer and effectuate the purposes of Article 12-A of the Real Property Law."

A complete video of the meeting is available here.

In summary, the following was discussed:
  1. Complaints: From 1/1/19 to 4/30/19, the Department of State received 241 complaints about licensees. For perspective, there are 134,964 licensees in New York State.
  2. Testing: In 2018, of the 27,209 individuals who sat for the salesperson exam, 14,172 passed, which is roughly a 52% pass rate; of the 2,215 individuals who sat for the brokers exam, 1,447 passed, which is a 55% pass rate.
  3. Regulations: The Board is considered updating advertising regulations as to web based advertising where lead generation will be specifically addressed. Additionally, corporate titles was raised as a concern and a committee was assigned to study the issue. The simple solution stated was increased enforcement. 
  4. Discrimination: Lawful source of income was discussed and the Department, while working with the Division of Human Rights, is hopefully going to issue guidance. 
Remember, to take Lieb School's online classes to stay ahead of your profession. 

Tuesday, February 05, 2019

Time Records Required For Rental Real Estate Brokers

Attention rental brokers – there is a new Safe Harbor available for your clients to claim qualified business income that is entitled to a 20% income tax deduction set forth at 26 USC §199A and your clients are going to need your help to qualify.   
The Safe Harbor, published by the IRS as “Section 199A, Trade or Business Safe Harbor: Rental Real Estate,” treats rental real estate enterprises as a qualifying trade or business for purposes of 26 USC §199A. 
Learn how to qualify by reading the full article by Andrew Lieb, Esq. published in the New York Real Estate Journal here. 

Monday, January 21, 2019

New NYS Law Requires Equal Access to Diaper Changing Tables in Public Restrooms

NYS Department of State adopted a rule amending 19 NYCRR 1219 and adding 19 NYCRR 1229 to require newly constructed buildings and buildings undergoing a substantial renovation to include diaper changing stations if buildings have publicly accessible toilets.

Effective January 1, 2019, such buildings must meet requirements which include having at least one diaper changing station accessible to any gender available on each floor level with a public restroom. The new rules also address requirements as to accessibility, construction, installation, maintenance and signage of the diaper changing tables.

Failure to comply may result in criminal sanctions pursuant to Executive Law §382(2).

For more details, read the full text of the 19 NYCRR 1219 and 19 NYCRR 1229.

Monday, February 19, 2018

House Approves ADA Education and Reform Act of 2017

The US House of Representatives approved the “ADA Education and Reform Act of 2017” or H.R. 620 with a 225-192 vote. This Bill will change the face of commercial real estate disability law immediately when signed by the President. Specifically, the Bill provides for a new notice and cure period as a condition precedent to civil suit. As such, commercial property owners should immediately implement a policy to demonstrate good faith that is triggered by receipt of a notice. Further, defense counsel should leverage this new law as a procedural basis to dismiss claims against commercial real estate clients.

As an aside, the Bill also provides for educational programs designed to promote public accommodations for persons with a disability, but such programs will require regulations prior to implementation so it is unknown how such programs will ultimately look. Regardless, the Bill provides for training of professionals whose job it is to assess accessibility of properties, such as Certified Access Specialists (CASp). The CASp program was created through California Senate Bill 262 and currently, New York does not have a similar program in place. Nonetheless, New York commercial real estate professionals may hire accessibility specialists certified by the International Code Council or similar programs.

As such, commercial real estate professionals should immediately learn more about these specialists to obtain an immediate assessment of their properties as it seems that a positive finding of compliance will be a good mitigator to suit.

To track H.R. 620’s progress through the Senate, use Govtrack.

Monday, January 09, 2017

Enforcing a Commercial Lease Against a Guarantor

Landlords cannot sue a guarantor in a Summary Proceeding because there is “no relationship of landlord and tenant … [where guarantor] was not a primary or joint obligor but assumed a secondary liability which accrued only upon default by the principal.” See Marburt Holding Corp. v. Picto Corp.,(1st Dept., 1958). Therefore, to enforce a guarantee, a landlord must pursue a Plenary Action against the guarantor following the conclusion of the Summary Proceeding. Nonetheless, landlords need not fret about the difficulty and cost incident to instituting a Plenary Action against a guarantor because landlords can proceed pursuant to CPLR §3213 and utilize the Doctrine of Collateral Estoppel in order to avoid the protracted litigation that is typical of a Plenary Action.

Read the full article by Andrew Lieb, Esq. published in The Suffolk Lawyer here. 

Wednesday, January 07, 2015

Disclosures in Crowdfunding Projects

Crowdfunding, a way of funding a project from a large number of individual contributions, has become very popular in the commercial real estate world as a result of the JOBS Act of 2012, which eased securities regulations to give small businesses better access to funding. For example, Fundrise, a leading crowdfunding website, allows individuals to invest in commercial real estate projects, such as hotel or restaurant construction, for a low amount of money, opening up investment opportunities to everyone and not just wealthy accredited investors.

Now that crowdfunding is on the rise, it is important that everyone who is looking to invest in a project knows that they are entitled to certain disclosures under law. Rule 506(b) of Regulation D under the Securities Act is a new rule as of 2013 which established specific requirements to determine whether or not a transaction or project is exempt from Securities Act registration. When securities (i.e. investments) are registered, they provide important disclosure information to investors, such as a description of the company’s properties/businesses, a description of the securities, the company’s management information, and the company’s financials. Under Rule 506(b), some companies do not need to register their securities if they do not advertise their securities to the general public and do not sell the securities to more than 35 non-accredited investors. Therefore, it should be noted that if companies on Fundrise want certain transactions or projects exempt from registration, they must be careful not to sell securities to more than 35 non-accredited investors. However, these companies, despite being exempt from registration, must still give the same important disclosure documents and financial information to non-accredited investors and must answer questions from non-accredited investors. This rule is in place to protect individuals, who are not as knowledgeable or savvy as accredited investors, from being victims of fraud or misrepresentation.

If you are thinking of investing in a real estate project in the near future, remember that you are entitled under law to certain disclosures about the project and company in question. Regardless of any exemption, this information must be given to you as long as you are a non-accredited investor.

Click here if you would like to know the top 60 real estate crowdfunding platforms.