A six-year constitutional fight over pandemic rent defaults reaches its end
A New York appellate court upheld the city’s pandemic-era law blocking landlords from enforcing personal guaranty claims on commercial leases.
The Appellate Division, First Department, ruled on October 20 that New York City Administrative Code section 22-1005 - the “guaranty law” - does not violate the Contracts Clause of the US Constitution. The 4-1 decision reversed a lower court that had struck the law down.
Signed into law in May 2020, the guaranty law made personal liability guaranties on certain commercial leases unenforceable for defaults between March 7, 2020 and June 30, 2021. It covered only natural person guarantors - not corporate ones - and only tenants forced to close or cut capacity under the Governor’s executive orders.
The underlying dispute was straightforward. A Manhattan building owner sued the operator of an art gallery at 527 West 26th Street and the gallery’s owner, who had signed a “good guy” guaranty on a 10-year lease. The gallery stopped paying rent in March 2020 and handed back the keys that December. The landlord wanted to collect under the personal guaranty for rent owed during the statutory window.
After an earlier round of litigation, the lower court declared the law unconstitutional, drawing on concerns the Second Circuit had flagged in the parallel federal Melendez case - which never produced a final merits ruling before being dismissed on standing grounds.
The First Department took a different view. Justice Rosado, writing for the majority, found the City Council had a legitimate public purpose backed by an extensive legislative record: testimony from business owners facing personal ruin, data showing weekly unemployment claims in the city spiked 2,637% in late March 2020, and projections that roughly 75,000 of the city’s 230,000 small businesses might never reopen.
The court held the law passed muster under the “substantial deference” standard applied when government impairs private contracts during an emergency. Its built-in limits helped: a 16-month window, coverage restricted to natural person guarantors hit by specific executive orders, and landlords still free to pursue the tenant entity or apply security deposits.
Justice Friedman dissented, arguing the law permanently wiped out guaranty obligations rather than deferring them, lacked a hardship requirement, and loaded the full economic burden onto landlords.
For anyone in commercial real estate or lending, the practical signal is clear: personal guaranties on commercial leases are not immune to emergency legislation, and the enforceability landlords and lenders rely on can be suspended when circumstances are extraordinary enough.
The decision is a slip opinion subject to revision before official publication.
