The 2020 COVID-19 pandemic brought substantial obstacles to New York City’s real estate industry. The times were challenging, but the industry would not break. In typical NYC fashion, every adversity was answered with innovative ideas and statutory shifts.
Personal Liability Bill
The lockdowns necessary to battle the COVID-19 pandemic put a crippling burden on the city’s commercial businesses, especially those that rent space. To protect those businesses, the City Council introduced the Personal Liability Bill.
Leases for commercial property usually include a provision for personal liability or guaranty. Should a business neglect to pay rent, the guarantor becomes responsible for the payments.
This bill, signed by Mayor Bill de Blasio in the summer of 2020, bars commercial property landlords from enforcing these provisions on any default that occurred between March 7 and September 30, 2020. On September 28th, Local Law 55 of 2020 was revised extending the ban to March 31, 2021.
For tenant defaults that occurred during this period, landlords will never be able to impose the personal liability provision to recoup lost rents provided that the guarantor is a person affected by COVID-19 that defaulted during the March 7, 2020 – March 31, 2021 timeframe.
The economic nosedive hit residential tenants just as badly as commercial ones. In an effort to prevent the potential housing crisis, the state put a freeze on all commercial and residential evictions. This moratorium was extended multiple times throughout the year.
Commercial leasing has changed dramatically during the pandemic. As more and more businesses move to full or partial remote working, a growing number of commercial properties sit empty. This dynamic has led to landlords and tenants working together for more prudent leasing options.
One solution emerging from this collaboration is shorter terms on commercial leases. Before COVID-19, commercial leases would be written with terms anywhere from 5 to 30 years. With so much uncertainty as to what the future will bring, these terms have become burdensome. Negotiation of shorter-term commercial leases not only brings reassurance to both landlord and tenant but also leaves room for renegotiation later on.
Commercial subleasing is another concept being increasingly implemented. Subleasing has enabled renters to share lease expenses with smaller operations.