If you own a restaurant, bar, hotel or nightclub in NYC, you should have your commercial lease renegotiated now.

Why the urgency? NYC just passed a law which essentially invalidates personal guaranties on commercial leases for a limited period of time (Int. No. 1932-A). Specifically, if your commercial lease is accompanied by some form of personal guaranty (eg, limited, Good Guy Guaranty or any other form of personal guaranty), that guaranty would be void if you defaulted because of a government order to close indoor eating and drinking establishments during the COVID emergency, providing that the default occurs between March 7 and September 30, 2020. This is a complete game changer for commercial tenants such as restaurants because now you have some leverage to work with to renegotiate your current over-market lease. If you can’t work out amenable terms now, you would be able to terminate the tenancy and not risk any personal exposure. The Landlord would be be able to keep the security deposit but if your like most NYC restaurants and bars, that security deposit is already substantially if not completely depleted.

With the passing of this new law, Landlords are now facing a new reality with regards to the limited recourse in the event of a tenant breach. As a result, landlords should do everything they can to work with the tenant to keep them from vacating the premises. If a restaurant tenant vacates now, the premises will likely remain vacant for a year or more given the current environment, when and if a new tenant comes along they will insist on at least a few months of free rent and perhaps some landlord financial contribution towards their intended new new build-out, and finally the landlord will need the pay the broker fee on the transaction which will of course be substantial. Thus, now more than ever it makes financial sense for a landlord to negotiate to keep the current tenant in place and offer significant rent reductions (even if those reductions are short term) rather than risk having that tenant vacate the premises.

Another reason for the urgency is that this new law may not be around too long as it will certainly be challenged on constitutional grounds.

Needless to state, I recommend that you retain qualified legal counsel to engage in these lease negotiations. I have had great success in renegotiating commercial leases on behalf of my clients. Feel free to contact me to discuss. Mark B. Stumer, Esq. (212) 633-2225

A Summary from the NYSRA with Post Commentary

– The CARES Act is complicated legislation and its still unclear if receiving a certain loan or grant precludes you from receiving certain other loans or grants. While these details are being ironed out, below is a summary prepared by the NYSRA of the benefits offered by the federal CARES Act. We suggest that you consult with a professional (attorney or accountant) knowledgeable about the details of the various loans and grants being offered prior to applying.

How Does It Work?

The plan provides $349 billion in cash flow assistance through 100% federally guaranteed loans to small businesses and 501(c)(3) nonprofit organizations during this emergency. To help bring workers who may have already been laid off, the program can be retroactive to February 15, 2020, so employees can return onto payrolls. The loans covered period is February 15 to June 30, 2020. The expected forgiveness amount can be expended on payroll costs, payments of interest on a mortgage obligation, rent obligations, and utility payments.

The loan can pay for:

– The sum of payments of any compensation with respect to employees that is a salary or wage;

– Payment of cash tip or equivalent;

– Payment for vacation, parental, family, medical, or sick leave;

– Allowance for dismissal or separation;

– Payment required for the provisions of group health care benefits, including insurance premiums;

– Payment of any retirement benefit; or

– Payment of State or local tax assessed on the compensation of employees.

The maximum loan amount must be the lesser of:

1) Two and a half months payroll, as calculated by taking the average total monthly payments by the business for payroll costs incurred during the 1-year period before the date on which the loan is made.

For a seasonal employer, the business calculates the average total monthly payments for payroll during the 12-week period beginning February 15, 2019, or at the choice of the business, March 1, 2019, and ending June 30, 2019. Multiply this number by 2.5 for two and a half months payroll.

2) $10,000,000

Restricted from being included in the payroll calculation are: Any salaries above $100,000 per year and any qualified sick leave wages for which a tax credit is allowed under section 7001 or 7003 of the Families First Coronavirus Response Act.

What Businesses Are Eligible?

– Only small businesses that employ less than 500 employees are eligible for Paycheck Protection Program and SBA Loan Forgiveness. However, restaurant, foodservice, caterers, and hotels that employ not more than 500 employees per physical location of the business are also eligible to receive a single loan if they operate under the North American Industry Classification System code beginning with 72 (Accommodation and Food Services U.S. Census Bureau).

– The program enacted by this legislation would remove the Credit Elsewhere Test, which requires an extensive analysis to determine whether the borrower has the ability to obtain some, or all, of the requested loan funds from alternative sources, without causing undue hardship. That test could also have required them to utilize those alternative sources rather than obtain the Small Business Administration (SBA) loan if so.

– No collateral, or personal guarantee, shall be required for the covered loan.  Restaurant entities expressed concerns about the SBAs existing collateral requirements that could disqualify them from obtaining these loans. The Association successfully requested that the collateral requirements be eliminated.

– Waives affiliation rules for businesses in the hospitality and restaurant industries, franchises that are approved on the SBAs Franchise Directory, and small businesses that receive financing through the Small Business Investment Company (SBIC) program.

What Is Loan Forgiveness?

– The borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an eight week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.

– Amounts forgiven may not exceed the principal amount of the loan.

– Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered eight-week period compared to the previous year or time period, proportionate to maintaining employees and wages:

– Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation + any covered utility payment.

– The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation.

– To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

– The SBA Administrator and the Treasury Secretary may prescribe regulations granting de minimis exemptions from the requirements under this subsection.

– Borrowers will verify through documentation to lenders their payments during the period. Lenders that receive the required documentation will not be subject to an enforcement action or penalties by the Administrator relating to loan forgiveness for eligible uses.

– Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest. The 100% loan guarantee remains intact.

– The calculation for an average monthly number of full-time equivalent employees is about 30 hours per week, under the Affordable Care Act. The forgiveness amount is reduced according to the amount of full-time employees on staff compared to the previous year, February 15, 2019 to June 30, 2019.

– Loan forgiveness may also cover any additional wages paid by businesses to tipped employees (as defined in the Fair Labor Standards Act).

Loan Mechanics

– The program is administered through the (SBA) 7(a) Loan Program, and the government guarantee increases to 100% through December 31, 2020, and then reduce to 75% for loans exceeding $150,000 and 85% for loans equal to or less than $150,000.

– Waives both borrower and lender fees for 7(a) loans.

– Increases the maximum loan for an SBA Express loan from $350,000 to $1 million through December 31, 2020.

– Exclusions: Provides a limitation on a borrower from receiving this assistance and an economic injury disaster loan through SBA for the same purpose. However, it allows a borrower who has an economic injury disaster loan (EIDL) unrelated to coronavirus to apply for a PPP loan, with an option to refinance that loan into the PPP loan. The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.

Qualified Improvement Property

– Businesses will be able to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.

– This corrects the error in the Tax Cuts and Jobs Act and increases a business access to cash flow by allowing them to amend a prior year return, while incentivizing investment.

Employee Retention Tax Credit

The employee retention tax credit (ERTC) for employers subject to closure due to coronavirus. The provision provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the crisis. The credit is available to employers whose 1) operations were fully or partially suspended, due to a coronavirus related shut-down order, or 2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the coronavirus-related circumstances described above.  For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Community Development Block Grants (CDBG)

$5 billion to enable nearly 1,240 states, counties, and cities to rapidly respond to coronavirus and the economic and housing impacts caused by it. Of the amounts provided, $2 billion will be allocated to states and local governments based on the prevalence and risk of COVID-19 and related economic and housing disruption.

Modifications for Net Operating Losses (NOLs)

– The provision relaxes limitations on a company’s use of losses from prior years. NOLs are currently subject to a taxable income limitation, and they cannot be carried back to reduce income in a prior tax year. This provision provides that a loss from 2018, 2019, or 2020 can be carried back five years.

– This also temporarily removes the taxable income limitation to allow an NOL to fully offset income.

Delay of Payment of Employer Payroll Taxes

– Employers can defer payment of the employer share of the Social Security tax.

– The deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

Temporary exception from excise tax for alcohol used to produce hand sanitizer

– The federal excise tax is waived on any distilled spirits used for or contained in hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration and is effective for calendar year 2020.

Additional Tax Relief

– The tax filing deadline will be extended from April 15 to July 15.   Businesses and individuals can postpone estimated tax payments due from the date of enactment until October 15, 2020 with no cap on the amount of payment postponed.

– Modification of limitation on losses for taxpayers other than corporations

– Modification of credit for prior year minimum tax liability of corporations

– Modification of limitation on business interest

Emergency Relief and Taxpayer Protections

– Provides $500 billion to Treasury’s Exchange Stabilization Fund to provide loans, loan guarantees, and other investments for direct lending, including:

– $25 billion for passenger air carriers, and businesses approved to perform inspection, repair, replace, or overhaul services, and ticket agents; $4 billion for cargo air carriers; and $17 billion for businesses important to maintaining national security.

– $454 billion for loans, loan guarantees, and investments in support of the Federal Reserve’s lending facilities to eligible businesses, states, and municipalities.

– All direct lending must meet the following criteria: 1) Alternative financing is not reasonably available to the business; 2) The loan is sufficiently secured or made at an interest rate that reflects the risk of the loan and, if possible, not less than an interest rate based on market conditions for comparable obligations before the coronavirus outbreak; 3) The duration of the loan shall be as short as possible and shall not exceed 5 years; 4) Borrowers and their affiliates cannot engage in stock buybacks, unless contractually obligated, or pay dividends until the loan is no longer outstanding or one year after the date of the loan; 5) Borrowers must, until September 30, 2020, maintain its employment levels as of March 24, 2020, to the extent practicable, and retain no less than 90 percent of its employees as of that date; 6) A borrower must certify that it is a U.S.-domiciled business and its employees are predominantly located in the U.S.; 7) The loan cannot be forgiven; and 8) In the case of borrowers critical to national security, their operations are jeopardized by losses related to the coronavirus pandemic.

On April 11, 2018, the New York City Council enacted a package of legislation referred to as the “Stop Sexual Harassment in NYC Act,” described by the City Council as critical to creating safe workplaces in New York City.

The Stop Sexual Harassment in NYC Act passed one day after New York Gov. Andrew Cuomo signed the Budget Bill, which contains a new state law requiring employers to conduct annual anti-sexual harassment training. New York City employers must comply with both state and city training requirements.

Whereas the NYCHRL generally covers employers with four (4) or more employees, all New York City employers, regardless of the number of individuals they employ, will be subject to the NYCHRL with respect to only sexual harassment. Thus, for sexual harassment claims only, the law expands the definition of employer to include all New York City businesses and entities that employ at least one individual within New York City.

The Stop Sexual Harassment in NYC Act also expands the statute of limitations period for sexual harassment claims. Under the NYCHRL, aggrieved individuals have one year from the alleged discriminatory practice to file a complaint with the New York City Commission on Human Rights and three (3) years from the alleged incident to file a claim in court. Effective immediately, the new law allows individuals up to three (3) years to file sexual harassment claims with either the City Commission or in court; the statute of limitations period for all other discrimination or harassment claims remains unchanged.

In addition, within 120-days after the Mayor signs the Stop Sexual Harassment in NYC Act into law, the City Commission must create anti-sexual harassment posters in both English and Spanish. New York City employers will be required to post both the English and Spanish versions of the posters with other workplace postings.

Finally, as of April 1, 2019, all private employers with fifteen (15) or more employees in New York City will be required to conduct annual anti-sexual harassment interactive training. The City Commission is charged with creating interactive training programs. Employers can use the model training programs created by the City Commission to satisfy the training requirements set forth in the Stop Sexual Harassment in NYC Act, or they can implement their own policies and training programs provided that such policies and programs equal or exceed the minimum standards set by City Commission.

Unlimited drink specials are illegal in New York (with limited exception for private events).   This Prohibition included “bottomless glass” of champagne brunch specials but it is regularly ignored because most owners are simply not aware of it. However, the prohibition was recently placed into the spotlight and the New York State Liquor Authority (NYSLA) issued the following statement on Feb. 26, 2014 which was supposed to ease and clarify the prohibition:

Serving unlimited drinks to a patron is prohibited under the Alcoholic Beverage Control law, and instances of over serving by our licensees will be investigated and prosecuted. However, there is a limited exception in the statute when the service of alcohol is incidental to the event, such as in the case of certain brunch specials. Even under these limited exceptions, licensees still have a legal obligation not to over serve patrons.  The SLA will continue to take a balanced regulatory approach by allowing licensees to conduct specials where alcohol is an accompaniment, while simultaneously cracking down on specials that promote excessive drinking. -New York State Liquor Authority

The New York City Hospitality Alliance publicly commended the NYSLA for issuing this statement and for providing such clarity. However, all the rest of us must have missed the clarity that the NYC Hospitality Alliance apparently saw in that statement.

there is a limited exception in the statute when the service of alcohol is incidental to the event, such as in the case of certain brunch specials. When is the service of alcohol incidental to the event/brunch?  Always?  Sometimes?  When there are pancakes on the menu? Why just brunch?  If the service of alcohol can now be now deemed incidental during brunch, why is it not deemed incidental during lunch or dinner as well?

The reality is that the NYSLA statement provides no clarity whatsoever on the prohibition and in fact causes more confusion because now there appears to be some new exception to the prohibition that applies to certain brunch specials . . .but leaves us all in the dark as to the necessary elements of this exception.  Until there is some actual clarification or specifically stated exception to the prohibition, we still recommend that you do not offer any unlimited drink specials during brunch, lunch, dinner or otherwise.