On Oct. 28, 2021, the U.S. Court of Appeals for the Second Circuit issued an important decision in Melendez v. City of New York, upholding laws adopted by the New York City Council that sought to address the impact of the COVID-19 pandemic on lessees, while reversing the lower court decision that prevented landlords from pursuing rent during the 16-month window in which the law was in effect. The case is significant as it not only provides the analytical framework for local governments to guide drafting and passing local ordinances in response to a crisis, but also provides private entities the pleading standard to challenge those pandemic or emergency related laws.

The Second Circuit panel concluded that the group of landlords seeking to challenge the sweeping legislation had pled sufficient facts to pursue their claims on the law's failure to meet a "means" test thereby reviving commercial landlords' constitutional challenges to certain laws enacted by New York City at the height of the COVID-19 pandemic. The landlords in the action consisted of small commercial building owners in Brooklyn, Queens and Manhattan who sued the City alleging violations of the U.S. Constitution's Contracts Clause (Article 1, §10), which prohibits state law impairing contractual obligations. Specifically, the landlords challenged the constitutionality of NYC's "Guaranty Law" which was enacted in May 2020 to permanently prohibit the enforcement of any personal guaranties of rent obligations arising under certain commercial leases during an almost sixteen-month period. Under the Guaranty Law, if a commercial tenant failed to pay rent owed for any time during that period, the landlord can never seek to recover those amounts from the guarantor.

The Second Circuit decided the case on appeal after the U.S. District Court for the Southern District of New York dismissed the landlords' amended complaint for failure to state a claim on which relief could plausibly be granted. As for the Contracts Clause challenge, the district court determined that although the complaint plausibly alleged a substantial impairment of the landlords' existing contractual relationships, the court dismissed the action because the Guaranty Law advanced a legitimate purpose and was a reasonable and necessary response to a "real emergency." It noted that the law affords "substantial deference" to those policymakers making good-faith efforts to act in the public interest. The district court also dismissed certain free speech and due process challenges to City's "Harassment Amendments," which prohibit "threatening" residential or commercial tenants based on their COVID-19 status.