New York Landlord Legal Survival During the Covid-19 Crisis
New York residential and commercial landlords: Robert Friedman with over 41 years of experience successfully representing landlords and real estate investors, can advise and show you how to:
- Meet your expenses during the Covid-19 Crisis,
- Preserve the value of your properties during the Covid-19 Crisis,
- Protect and preserve your rights to evict tenants and not violate your tenant’s rights during the Covid-19 crisis,
- Effectively negotiate with your tenants,
- Be compassionate and reasonable, yet firm, in the eyes of the courts, the public, and your tenants,
- Use Self-help ( when it is permissible and when it can land you in jail),
- Draft repayment or lease modification agreements,
- Use security deposits for rent payments,
- Be ready to evict your tenants when the courts reopen,
- Collect now from guarantors and letters of credit,
- Respond to commercial tenants who won’t pay rents based on:
- Avoid Discrimination Lawsuits by Tenants
- Are New York Rent Strikes Legal?
- What Is a New York Rent Strike?
- Why Have NY Landlords Been Losing Power?
- What Relief Are Landlords Asking from Congress?
- NY Covid-19 Eviction Procedures
- COVID Rent Relief Program
- COVID-19 NY Eviction Moratorium Extended Again
- NY Commercial Eviction Moratorium Extended Again
- NY Residential Eviction & Foreclosure Moratorium Extended To May 1, 2021
Legal Help for NY Landlords and Tenants During the COVID-19 Crisis
As the COVID-19 crisis continues, landlords and tenants alike are facing tremendous uncertainty with regards to their respective rights and the legal remedies available to enforce them. With a temporary moratorium on evictions until at least October 1, 2020 New York tenants are now especially vulnerable to landlords who take the law in their own hands with self-help evictions and illegal lockouts. Nonetheless, there are certain initiatives, available in specific situations, that landlords and tenants can take to protect themselves until the courts fully reopen.
Even though no new evictions can be commenced until at least October 1, 2020, there is nothing preventing landlords from getting the process started by serving notices to quit/rent demands on tenants. Under the recent New York Tenant Protection Act of 2019 , for non-payment of rent, notice sent by certified mail, after residential rent is past due 5 days, and a 14-day notice to quit are required. This means that tenants, if they wish to avoid being evicted when the moratorium is lifted, should still be paying their rent. The proposed bills to cancel rent payments for residential tenants and small business are currently only propositions.
Additionally, there is a moratorium on nonpayment evictions of residential or commercial tenants who are eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic for a period of sixty days beginning on June 20, 2020. Late rent fees may not be charged from March 20, 2020, through August 20, 2020.
ESSENTIAL NY LANDLORD/TENANT MATTERS
Landlords should be aware that tenants may also turn to the courts for violations of their rights during the COVID-19 crisis. Serious housing code violations are considered “essential matters” by the New York courts, and tenants who find themselves in situations involving leaking roofs, vermin infestations, of the shutting off of heat, hot water, or electricity can report such violations and seek a court-ordered repair order.
BREACH OF THE NY WARRANTY OF HABITABILITY
During this trying time, landlords should take tenant complaints seriously and do their best to address issues of habitability while also maintaining social distance and taking all other necessary measures to prevent the spread of the virus. Tenants’ Rights to Livable Premises. Finally, under no circumstances should a residential landlord attempt to lock a tenant out of the premises. Cases if illegal lockouts will continue to be heard during the COVID-19 crisis, and landlords who resort to this form of extreme self-help may face both civil and criminal liability.
NY COMMERCIAL LANDLORDS
Meanwhile, commercial landlords and tenants are burdened by unique set of issues caused by the recent executive orders shutting down most businesses. Depending on the terms of the commercial lease, the significance of the shut down on the tenant’s bottom-line, and what the New York State government’s response will be in the days and weeks to come, some businesses may be able to defer or avoid rent payments for a time.
New York commercial landlords are suing tenants for rent in U.S. District Courts which are still open. Cases that are entirely based on state law may be brought in federal court under the court’s diversity jurisdiction which permits a plaintiff of one state to file a lawsuit in federal court when the defendant is located in another state. The defendant can also seek to “remove” from state court for the same reason. To bring a state law claim in federal court, all of the plaintiffs must be located in different states than all of the defendants and the amount in controversy must be more than $75,000.
Many commercial leases provide security to landlords in the form of personal guarantees, standby letters of credit, or cash security deposits. With these protections, the moratorium on eviction does not necessarily inhibit a commercial landlord’s ability to collect rent from a tenant’s affiliates. Furthermore, it is common for a guarantor to waive defenses (discussed below) that commercial tenants may themselves invoke. Also, the courts need not be involved to demand payment on guaranties; the guaranty clause of the lease itself is enough to trigger liability. Similarly, landlords should not have to initiate legal actions to offset against security deposits or draw down on lines of credit, though it is essential that landlords carefully review lease terms and even consult with experienced landlord/tenant attorneys before engaging in these forms of “self-help”.
Commercial landlords should also seek legal counsel before engaging in more aggressive forms of self-help such as changing the locks on a commercial tenant who has failed to pay rent. Though the New York Supreme Court has recently upheld commercial landlords’ rights to exercise self-help if the lease allows for re-entry to the premises upon non-payment, if the landlord served a valid rent demand, and if the landlord re-entered “peaceably”, there is still the risk that a commercial tenant could make a claim for harassment. Such risk is amplified during the COVID-19 crisis as commercial tenants may now have valid, pandemic-specific excuses for failing to pay rent.
If a commercial lease contains a “force majeure” clause, a party’s non-performance of the lease terms may be excused in the event of extraordinary and unanticipated events that the parties cannot control. Such a clause, however, does not provide carte blanche for a tenant to withhold rent payments. In the current situation, though a court may easily find that the government ordered shutdown was not foreseeable at the time of the lease signing, the tenant may not be excused from paying rent if the force majeure clause specifically excludes rent payments from the realm of excusable obligations. Most force majeure clauses in commercial leases contain such an exclusion, and landlords and tenants should both scrutinize their leases to see how they may or may not benefit from the language contained therein.
Commercial tenants may also attempt arguing the common-law doctrine of “frustration of purpose” to excuse their payment of rent, reasoning that the purpose of the lease was to use the leased space to conduct business and, since that is no longer possible, rent payment should be excused during the shut-down. Commercial tenants, such as stores and restaurants, which actually rely on a physical space to solicit and conduct business, may have more luck with this angle than commercial tenants such as warehouses and call centers which remain open, but nonetheless have still taken a financial hit due to the COVID- 19 crisis. This is because the “frustration” must come from the failure to use the physical location, not the failure of the business. Courts do not generally apply the doctrine of frustration of purpose to excuse non-payment of rent based on changing market forced, even when the market change is as significant as the one caused by the current shut- down.
Reliance on the common law doctrine of “impossibility” or “impracticability” to excuse payment of rent may be equally misguided. Under this theory, performance may be excused when the destruction of the subject matter or means of performance of a contract makes compliance impossible. Courts are not likely to see this as applicable to the COVID-19 crisis since the impossibility/impracticability of paying rent is due to lack of revenue, not the actual shut-down orders, and it has long been held by New York courts that financial trouble is not a basis for application of this doctrine.
If tenants cannot pay rent now or can only pay partial rent, have the tenant sign a Rent Deferral Agreement setting forth:
- When and how the tenant notified you of their inability to pay rent;
- The reason for the rent delay;
- What past due rent notices have been served or sent to the tenant;
- Documentation provided by the tenant of inability to pay rent;
- Any expected SBA loans or government assistance;
- Itemization of all amounts owed to the landlord;
- Amount of rent being deferred;
- The repayment plan;
- Any promissory notes to be signed by the tenant or guarantors for the rent owed; and
- Any other lease modifications.
New York landlords and tenants or licensees of residential properties may, upon the consent of the tenant or licensee, enter into a written agreement by which the security deposit and any interest accrued thereof, shall be used to pay rent that is in arrears or will become due. If the amount of the deposit represents less than a full month rent payment, this consent does not constitute a waiver of the remaining rent due and owing for that month. Execution in counterpart by email will constitute sufficient execution for consent. Landlords shall provide such relief to tenants or licensees who so request it that are eligible for unemployment insurance or benefits under state or federal law or are otherwise facing financial hardship due to the COVID-19 pandemic. It shall be at the tenant or licensee’s option to enter into such an agreement and landlords shall not harass, threaten or engage in any harmful act to compel such agreement. Any security deposit used as a payment of rent shall be replenished by the tenant or licensee, to be paid at the rate of 1/12 the amount used as rent per month. The payments to replenish the security deposit shall become due and owing no less than 90 days from the date of the usage of the security deposit as rent. The tenant or licensee may, at their sole option, retain insurance that provides relief for the landlord in lieu of the monthly security deposit replenishment, which the landlord, must accept such insurance as replenishment. If you are a landlord or a tenant seeking legal guidance during these uncertain times, our experienced landlord/tenant attorneys are available to help you seven days a week by telephone at (716) 542-5444 or by filling out this contact form.
We are also available for consultation regarding any of your other legal needs.