By Socrates Xanthopoulos
Roughly a year and a half after the start of the COVID-19, businesses, landlords and real estate groups across New York State are still feeling the burden and fallout of the statewide eviction and foreclosure moratoriums which took effect on March 16, 2020. Despite the Supreme Court of the United States (“SCOTUS”), in a groundbreaking 6-3 decision that partially lifted parts of New York State’s moratorium, recently rejecting the federal moratorium on residential evictions previously imposed by the Centers for Disease Control and Prevention (the “CDC”), New York State’s legislature agreed earlier this month to extend its statewide eviction and foreclosure moratoriums through January 15, 2022 – however, despite the extension of the moratoriums themselves, the new law provides landlords of NY properties, as well as their lenders, with a mechanism to challenge tenants’ assertions of financial hardship by reason of the COVID-19 pandemic. This article defines the specifics of New York State’s eviction and foreclosure moratoriums and highlights the potential relief and silver linings that residential and commercial landlords (and lenders) may find in the new legislation.
- New York State’s moratoriums and its effect
On September 4, 2020, the CDC imposed a temporary, nationwide federal moratorium on residential evictions for nonpayment of rent. The CDC claimed its purpose of the order was to prevent the further spread of COVID-19, specifically by preventing homelessness and overcrowded housing conditions resulting from evictions. New York State followed the federal government’s direction and on March 16, 2020, the Chief Administrative Judge of the Courts issued a memorandum suspending all eviction proceedings and then-pending eviction orders. Subsequently, on June 30, 2020, the Tenant Safe Harbor Act (S8192B) went into effect which prohibited courts from issuing a warrant of eviction or judgment of possession against a residential tenant for unpaid rent accrued during the “covered period” if the tenant could prove, in defense, that they experienced financial hardship due to COVID-19 during the covered period. However, under this law, a landlord could still request, and a judge could still enter a money judgment for the rent due the landlord, and the protection afford by said law did not extend to holdover cases involving tenants that remained in possession of their space beyond the end of their lease term.
While the moratorium provides sweeping protections for tenants, landlords and business owners across throughout New York continue to struggle with unpaid bills, outstanding taxes and past due loan payments with no steady income stream in sight. Since the legislation went into effect, more than 830,000 tenants in New York are in arrears on their rent obligations (owing at least $4,000, on average) – that translates into over $3 billion of debt and, in New York City alone, more than 60,000 eviction cases have been filed since the beginning of the pandemic, according to Princeton University’s Eviction Lab. Landlord activists and their counsel argue that the ban is too broad and placed an “enormous burden” on landlords. The Rent Stabilization Association of New York City, a trade association for property owners, noted the process to avoid eviction was far too simple and, “[a]ll you had to do was check a box; in theory, it applied to millionaires and there were stories where tenants were using the law meant to protect vulnerable New Yorkers as a sword rather than a shield to take advantage of landlords.”
- SCOTUS Tackles the Moratorium
On August 12, 2021, in a lawsuit brought by the Rent Stabilization Association of NYC, landlords argued that the New York moratoriums were unlawful because the State, by interfering with landlords’ property rights without giving them a say in the matter, was denying landlords due process of law. In support of that argument, these landlords stressed that renters were not required to prove they were actually in financial straits, nor were landlords allowed the opportunity to show that individual renters could actually afford to pay their rent. SCOTUS sided with the landlords and struck down part of New York’s moratorium stating, “[i]f a tenant self-certifies financial hardship, Part A of CEEFPA generally precludes a landlord from contesting that certification and denies the landlord a hearing. This scheme violates the Court’s longstanding teaching that ordinarily ‘no man can be a judge in his own case’ consistent with the Due Process Clause.”
- New York State’s Response to SCOTUS’ Ruling
After SCOTUS’ ruling, New York lawmakers strategized on how to maintain protection for tenants moving forward. On September 1, 2021, New York State extended its eviction and foreclosure moratoriums, but in doing so, added a “due process” mechanism that allows landlords to challenge tenants’ hardship claims in court. Essentially, the extension continues the structure of the moratoriums that were in place through August 31, 2021. Like before, the applicable hardship declaration form (whether commercial or residential) must be included with every written notice required to be served prior to the commencement of an eviction proceeding as well as with every initiating pleading served on a tenant. In order to commence an eviction proceeding, a landlord must file an affidavit of service demonstrating that it served a hardship declaration and attesting that either (1) at the time of the filing, the landlord did not receive a completed hardship declaration from the tenant, or (2) the tenant returned the completed hardship declaration but is intentionally damaging the property or engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others, with a specific description of the behavior alleged.
In addition, the extension of the moratorium also entitled landlords to commence an eviction proceeding in cases where their tenant returned a hardship declaration that the landlord “believes in good faith that the hardship certified in the hardship declaration does not exist.” Thus, a landlord can challenge a tenant’s hardship declaration by making a motion on notice “attesting a good faith belief that the [tenant] has not experienced a hardship,” whereupon “the court shall grant a hearing to determine whether to find the respondent’s or defendant’s hardship claim invalid.” If the court finds the tenant’s hardship claim: (i) valid after a hearing, the court shall grant or continue the stay through January 15, 2022, but judges who hold a residential tenant’s hardship declaration to be valid are also directed to require said residential tenants to apply for assistance under the COVID-19 Emergency Rental Assistance Program; or (ii) invalid after a hearing, “the proceedings shall continue to a determination on the merits.” Note that a similar due process mechanism was created for banks, lenders and other mortgage holders to challenge hardship declarations submitted by property owners to avoid foreclosure. While sentiments on the future of New York real estate may still be bleak in the eyes of many, others are hopeful that the State’s willingness to provide some level of protections to landlords – such as the aforesaid due process mechanisms, for example – is a step in the right direction.
- Relief for Commercial Landlords
Fortunately, some commercial landlords have been able to find relief and success in the court system despite the moratoriums limiting their ability to evict tenants. Avenues available to commercial landlords include the ability to terminate leases and seek court intervention to require payment of sums owed to them by their tenant for so long as the tenant remains in possession of the leased premises. Two (2) recent New York County Supreme Court rulings strengthened commercial landlords’ power to fight back.
In Gramercy Park Partners, LLC v. GPH Ground Tenant LLC et al., (N.Y. 2021), a tenant defaulted under its lease, hadn’t paid rent to the landlord since November 2020, failed to pay real property taxes owed to the City of New York, and refused to vacate or surrender the premises after the landlord terminated the lease. The court ruled in favor of the landlord and directed the tenant to pay the back rent owed to the landlord, pay all restate taxes on the premises and all outstanding real estate taxes due to the City of New York.
In The Gap, Inc. v. 170 Broadway Retail Owner, LLC, the New York Appellate Division, First Department, ruled in favor of a commercial landlord when it struck down a tenant’s claims that the COVID-19 pandemic (i) should be treated as a casualty under the terms of its commercial lease and (ii) frustrated the purpose of its commercial lease. The court noted that a pandemic did not meet the definition of a “casualty” and thus, there was no lease provision breached by the parties to suffice as a successful breach of contract claim. In another cause of action, The Gap alleged that it was excused from paying the rent due under the lease because of its inability to use the premises as a retail store due to an unanticipated event that could not have been foreseen or guarded against in the lease. Similarly, the New York Appellate Division disagreed with this theory and rejected the claim because the tenant was not entirely deprived of the profits of its agreement. Further, the court noted that the mandatory closure was brief and not a legitimate factor by the time The Gap filed its complaint and thus, did not support their claim that it was impossible to perform under its lease.
For more information on this issue, or on any other real estate matters, please contact Socrates Xanthopoulos at email@example.com. This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team, or fill out a new client intake form.