Kings County Supreme Court Finds that the Filing of Lawsuits Against Guarantors May Constitute Commercial Tenant Harassment and Impossibility Defense Allows Commercial Tenant to Avoid Liability for Payment of Rent

On March 15, 2021, the Hon. Loren Bailey-Schiffman, J.S.C. of the Kings County Supreme Court issued a Decision and Order in 267 Development, LLC v. Brooklyn Babies and Toddlers, LLC and Mary Ann O’Neil, Index No.: 510160/2020 (the “Action”) that is likely to send shockwaves through the New York State and New York City commercial real estate industry. Undoubtedly, commercial tenants will praise the ruling and landlords will take pause at the decision’s broad implications.

In short, 267 Development, LLC is a property owner and lessor that sued its commercial tenant, Brooklyn Babies and Toddlers, LLC (“BB”), and the guarantor, Ms. Mary Ann O’Neil ("Guarantor" and together with BB, the “Defendants”), for BB’s failure to pay rent. In their answer, Defendants asserted several affirmative defenses, including one for impossibility of performance, and a counterclaim against the landlord for commercial tenant harassment as set forth in New York City Administrative Code § 22-902(a) (“NYC Admin Code § 22-902(a)”).

In their counterclaim, Defendants asserted that the landlord’s filing of the Action against the Guarantor constituted commercial tenant harassment, since the landlord knew or should have known that attempts to collect monies from the Guarantor was prohibited by § 22-1005, as amended (“NYC Admin Code § 22-1005”). Under NYC Admin Code § 22-1005, commercial landlords in New York City cannot enforce a personal guaranty in a commercial lease against a natural person (other than the tenant) related to sums that were due between March 7, 2020 through March 31, 2021. For guarantors to avoid liability under NYC Admin Code § 22-1005, the tenant’s business must fall under certain enumerated categories that were subject to government mandated closures or in-person limitations associated with the COVID-19 Pandemic.

In the Action, the landlord sought summary judgment in its favor and dismissal of Defendants’ affirmative defenses and counterclaim. In response, Defendants cross-moved for summary judgment on their commercial tenant harassment counterclaim and dismissal of Plaintiff’s claims as against the Guarantor.

After considering the papers, the Court denied landlord’s motion for summary judgment and held that BB was not obligated to pay rent under the doctrine of impossibility because the government mandated closures were not foreseeable and could not have been contemplated when the landlord and BB entered into the subject commercial lease. As such, the Court held that landlord’s claims against BB for rent are barred for the period which BB was forced to shut down due to COVID-19.

Additionally, the Court also granted Defendants’ cross-motion for summary judgment and held that since the landlord knew or should have known that the landlord was prohibited from collecting certain monies from the Guarantor under NYC Admin Code § 22-1005, its commencement of the Action as against the Guarantor constituted commercial tenant harassment under NYC Admin Code § 22-902(a). Moreover, the Court dismissed the case against the Guarantor.