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