Amended Guaranty Law Raises Questions of Statutory Interpretation and Constitutionality
An analysis of the conflict that exists between the Amended Guaranty Law's explicit statutory language and the City Council's newly published declaration of legislative intent and findings. The article looks at the question of statutory interpretation and examines whether the newly amended Guaranty Law passes muster under the U.S. Constitution's Contracts Clause.
October 27, 2020 at 01:01 PM
14 minute read
On Sept. 29, 2020, Mayor Bill de Blasio signed into law Int. No. 2083-A / Local Law No. 98 of 2020, codified as N.Y.C. Admin. Code § 22-1005 (alternatively, the "Amended Guaranty Law" or "Local Law 98"). The Amended Guaranty Law is intended to relieve certain individual personal guarantors of commercial leases from enforcement of those guarantees, provided that the tenants defaulted during a statutorily defined window period of March 7, 2020 and March 31, 2021, and that those tenants: (1) were "required to cease serving patrons food or beverage for on-premises consumption or to cease operation[s]" during the COVID-19 pandemic, pursuant Governor Andrew Cuomo's Executive Order 202.3; (2) were "non-essential retail establishment[s] subject to in-person limitations" set forth pursuant to Executive Order 202.6; or (3) were otherwise "required to close to members of the public" under Executive Order 202.7. N.Y.C. Admin. Code § 22-1005(1). The statute does not require that tenants show actual financial harm.
Many criticized the original Guaranty Law for, among other things, vagueness as to whether the New York City Council intended for it to apply only to personal guaranty clauses contained in commercial lease agreements, or also to standalone personal guarantees. See Int. No. 1932-A / Local Law 55 of 2020 (the "Guaranty Law"). Many also asked whether the Guaranty Law effected a complete permanent cancellation of the guarantor's obligations or merely a temporary moratorium on enforcement.
The Amended Guaranty Law clarifies that it applies to personal guarantees arising under both commercial leases and standalone agreements, but leaves unresolved whether it permanently cancels obligations under personal guarantees within its ambit, or whether the law's effect is more temporary and limited in scope. That significant question may go to the very heart of whether the Amended Guaranty Law passes muster under the Contracts Clause of the U.S. Constitution. The uncertainty arises from the conflict that exists between the Amended Guaranty Law's explicit statutory text and the City Council's declaration of legislative intent and findings. How a court resolves that conflict may ultimately determine whether the law is upheld or stricken down as unconstitutional.
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