In a recent case, 513 West 26th Realty LLC v. George Billis Galleries Inc., a New York Supreme Court addressed whether the COVID-era personal guaranty relief statute (the Guaranty Law) violated the Contracts Clause of the U.S. Constitution.
The Guaranty Law was originally passed in May 2020 by the New York City Council in response to the COVID-19 pandemic. Its aim was to prevent commercial landlords from holding personal guarantors liable for a business tenant's default in rent payments during the State-mandated closure period.
In this case, the tenant, a gallery, defaulted on its lease, and the landlord sought to enforce the personal guarantee of the tenant's principal. The tenant argued that the Guaranty Law should invalidate the guarantee. The landlord, in turn, argued that this law unconstitutionally interfered with their contract rights, claiming it violated the Contracts Clause of the U.S. Constitution by impairing the enforceability of the lease agreement retroactively.
In deciding whether a law violates the Contracts Clause, the Court applies a two-step analysis. First, whether the state law has...
