New York codifies protections for commercial tenants and mortgagors

On March 9, 2021, New York Governor Andrew Cuomo signed the COVID-19 Emergency Protect Our Small Business Act of 2021 (the Act).  The Act legislatively continues and extends the current moratorium on the filing of new eviction and foreclosure actions, established by Governor Cuomo’s previous executive orders, through May 1, 2021.[1]

Unlike Governor Cuomo’s executive orders that prohibited eviction and foreclosure actions against all commercial tenants and commercial mortgage borrowers, the Act provides protections only to qualifying small business commercial tenants and borrowers under commercial mortgages.  In order to be protected, a business must have less than 50 employees and be a resident of New York, and the business must provide a “hardship declaration” attesting to the fact that they have either lost significant revenue or saw a significant increase in expenses as a result of the COVID-19.[2] 

The Act takes effect immediately.  Unless the tenancy or mortgage agreements involve such a qualifying small business tenant or borrower, the current moratorium on new eviction and foreclosure filings will expire in the State of New York on March 28, 2021.[3]

We summarize below the significant elements of the new law; address questions raised by commercial tenants, landlords and lenders; and identify potential implications. 

What commercial lessors and lessees need to know

The Act prohibits the eviction of qualified commercial tenants who file a “hardship declaration” (further details on hardship declarations below) until May 1, 2021.[4]  To qualify, a commercial tenant must be (i) a New York resident (ii) with 50 or fewer employees and (iii) “independently owned and operated.”  Any entity with a permanent business address in the State of New York should qualify as a “resident.”  The Act does not provide a definition for “independently owned and operated,” but similar language in other New York statutes indicates a court would use a fact-specific balancing test to determine independence.[5] 

If a commercial tenant satisfies these criteria, then no new eviction proceedings[6] may be brought against the tenant if they provide a hardship declaration.  If an eviction proceeding is pending, the matter will be stayed for at least 60 days (or a later date that the chief administrative judge will determine) to give tenants a chance to sign a hardship declaration.  While a stay is in place, for either an eviction proceeding or foreclosure action, applicable statutes of limitations are tolled.

Even where an eviction warrant or judgment of possession or ejectment has been issued but has not yet been executed, the execution will be stayed until a status conference with the parties has been held, and, where a hardship declaration has been provided, the execution will be stayed through May 1, 2021. The Act also requires that landlords include a hardship declaration with every notice required by their lease prior to the commencement of an eviction proceeding.

A landlord may initiate a new eviction proceeding if: (i) the tenant does not qualify for protection under the Act, (ii) they have not received a hardship declaration from the tenant after proper notice and service have been effected or (iii) if the tenant is “persistently and unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others[.]”  No filing or petition will be accepted by a court without an affidavit (i) attesting that, at the time of filing, “neither the petitioner or plaintiff…has received a hardship declaration from the respondent,” or (ii) describing the tenants’ “persistent and unreasonable” behavior.  If a filing or petition is made in the absence of a hardship declaration, the court will inquire into whether notice and service of a hardship declaration to the tenant was properly effectuated.  If the court determines that the tenant did not receive notice of the declaration, the proceeding will be stayed for a reasonable time (no less than 10 business days) to allow the tenant to submit a hardship declaration.

What commercial mortgagors and mortgagees need to know

The Act similarly prohibits the initiation of a foreclosure action or the actual foreclosure against a property for qualified mortgagors until May 1, 2021.  To qualify, the mortgagor must be (i) an “independently owned and operated” (ii) New York resident with (iii) 50 or fewer employees, and (iv) no more than 10 commercial units.  These qualifications mimic the commercial tenant protections and are subject to the same qualifications and questions identified above with respect to “independent ownership” and residence. 

If a mortgagor qualifies and is delinquent in mortgage payments or taxes, then they may submit a hardship declaration to forestall foreclosure until after May 1.  During this period, no new foreclosure proceedings or tax foreclosures may be brought against owners/mortgagors which provide a hardship declaration, and any pending action will be stayed for at least 60 days. Even where a judgment of sale has been issued, if the owner/mortgagor provides a hardship declaration, the foreclosure will be stayed until May 1, 2021.[7] 

A creditor may initiate an action to foreclose on a mortgage so long as the mortgagor qualifies for protection under the Act and where no hardship declaration is provided if they include an affidavit attesting that (i) they provided the mortgagor the required notice and copy of the hardship declaration, and (ii) they never received a hardship declaration in return.  The court will inquire into whether notice and service of a hardship declaration to the tenant was properly effectuated.  If the court determines that the tenant did not receive notice of the declaration, the proceeding will be stayed for a reasonable time (no less than 10 business days) to allow the tenant to submit a hardship declaration.

The hardship declaration

For both commercial tenants and owners/mortgagors to enjoy the protections described above, the Act requires the provision of a hardship declaration.  The burden is on a tenant or borrower to complete and return a hardship declaration to its borrower.  However, landlords and creditors must provide a copy of the relevant hardship declaration to their tenants or mortgagors with any notice required by the commercial lease or tenancy agreement, law or rule to be provided prior to the commencement of an eviction proceeding.”  If a company provides its landlord or creditor with a hardship declaration then they cannot be evicted or foreclosed on prior to May 1, 2021.  A hardship declaration creates a rebuttable presumption that the proffering party is facing financial hardship during or due to the COVID-19 pandemic.  See id. at §§ A(11), B(A)(10), and B(B)(6).

We provide below language from the statute detailing the provisions of the hardship declaration. 

Comment

We note several implications and questions raised by the Act:

• Landlords and lenders should carefully consider whether a defaulting tenant or borrower satisfies the Act’s criteria and is eligible for a hardship declaration.  Tenants and borrowers that meet the criteria should promptly submit a hardship declaration.
  
  
• Landlords should consider whether tenants they seek to evict are “persistently and unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others[.]”  Id. at § A(9).  In such cases, eviction may still be possible, even in the face of a hardship declaration.
  
  
• The Act is based on the COVID-19 Emergency Eviction and Foreclosure Protection Act of 2020, enacted on December 28, 2020, and which similarly provided a moratorium on residential evictions and foreclosures for qualifying tenants or mortgagors until May 1, 2021.  The residential law required residential tenants and mortgagors to submit a hardship declaration within 60 days of the residential law’s enactment.  If residential tenants or mortgagors did not do so, then eviction or foreclosure actions could proceed or initiate.  Unlike its residential predecessor, the Act does not include a deadline for qualifying commercial tenants or mortgagors to provide the hardship declaration.  While actions or proceedings may be initiated accompanied by an affidavit attesting to the lack of a hardship declaration, the timeline for required action by the court is unclear.  Landlords or lenders may wish to build in reasonable deadlines for submitting a hardship declaration and keep thorough records of all notices provided.
  
  
• The Act expressly includes ejectment actions within its purview.  Accordingly, the Act appears to apply to plenary actions in the Supreme Court and not only in landlord tenant/housing part in Civil Court.[8]  The Governor’s Executive Orders applied to “proceedings” prompting some landlords to pursue a common law ejectment action in Supreme Court.  There has been a split of authority in the trial courts as to whether the ejectment action was available under the executive orders.[9]  The Act puts this question to rest.
  
  
• The Act provides that “[n]o commercial tenant shall be removed from the possession [of a leased property] prior to May 1, 2021, except by an eviction proceeding.”[10]  It is unclear whether this provision is intended to prohibit other forms of eviction such as “self-help” evictions, which are permitted under many commercial leases as long as they are peaceably effected.  Until this issue is resolved, it would be advisable to err on the side of caution and hold off on any actions that might violate this prohibition. 

The above summary of the Act provides an overview of the various protections afforded by and requirements of the new legislation and attempts to answer general questions and provide practical advice.  If you require specific legal advice regarding the COVID-19 Emergency Protect Our Small Business Act of 2021, please contact DLA Piper LLP.

Appendix: Hardship Declaration Language:

The language required to be included in a hardship declaration is provided within the Act. 

For commercial lessors, the bill requires the following declaration:

COMMERCIAL TENANT'S DECLARATION OF HARDSHIP DURING THE COVID–19 PANDEMIC

I am the owner, chief executive officer, president, or similar officer of (name of business), in which is a commercial tenant at (address of commercial unit). My business is resident in New York state, independently owned and operated, not dominant in its field, and employs fifty or fewer persons. My business is experiencing financial hardship, and is unable to pay the rent or other financial obligations under the lease in full or obtain an alternative suitable commercial property because of one or more of the following:

1. Significant loss of revenue during the COVID–19 pandemic.

2. Significant increase in necessary expenses related to providing personal protective equipment to employees or purchasing and installing other protective equipment to prevent the transmission of COVID–19 within the business.

3. Moving expenses and difficulty in securing an alternative commercial property make it a hardship for the business to relocate to another location during the COVID–19 pandemic.

To the extent the business has lost revenue or had increased expenses, any public assistance the business has received since the start of the COVID–19 pandemic does not fully make up for the business's loss of revenue or increased expenses.

I understand that the business must comply with all other lawful terms under its commercial tenancy, lease agreement or similar contract. I further understand that lawful fees, penalties or interest for not having paid rent in full or met other financial obligations as required by the commercial tenancy, lease agreement or similar contract may still be charged or collected and may result in a monetary judgment. I further understand that the landlord may be able to seek eviction after May 1, 2021, and that the law may provide certain protections at that time that are separate from those available through this declaration.

Signed:

Printed name:

Date signed:

See id. at § A(1)(4).  Subpart B provides similar language for owner/mortgagors at risk of foreclosure.  See id. at §§ B(A)(2), B(B)(2). 

Landlords seeking to evict a tenant, or creditors seeking to foreclose on property are required to provide certain notices to their tenants/debtors.  Specifically, the Act requires commercial landlords seeking an eviction to provide the following notices in 14-point type:

NOTICE TO COMMERCIAL TENANT: If you have lost significant revenue or had significantly increased necessary costs during the COVID–19 pandemic, and you sign and deliver this hardship declaration form to your landlord, you cannot be evicted until at least May 1, 2021 for nonpayment of rent or for holding over after the expiration of your lease. You may still be evicted for violating your lease by persistently and unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others.

If your landlord has provided you with this form, your landlord must also provide you with a mailing address and e-mail address to which you can return this form. If your landlord has already started an eviction proceeding against you, you can return this form to either your landlord, the court, or both at any time. You should keep a copy or picture of the signed form for your records. You will still owe any unpaid rent to your landlord. You should also keep careful track of what you have paid and any amount you still owe.

And:

NOTICE: You are signing and submitting this form under penalty of law. That means it is against the law to make a statement on this form that you know is false.