Adam Leitman Bailey discusses Understanding the Legal Weapons Landlords and Tenants have in Enforcing/Terminating Commercial Leases and the Secrets of How to Negotiate the Best Abatement/Deferment so both Landlord and Tenant are Happy for AmTrust on 7/15

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w w w . a l b l a w f i r m . c o m
Understanding the LegalWeapons Landlords andTenants Have
In Enforcing Commercial Leases
and the Secrets of How to Negotiate the Best Abatement Deferments
So Both Landlord AndTenant are Happy

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(i) Mortgagor will not, without the prior written consent of Mortgagee, (i) waive any default under or breach of any Lease or
any guaranty of any Lease, (ii) consent to or permit any prepayment or discount of rent or payment of advance rent under any Lease
or any Lease Guaranty (other than the usual prepayment of rent as would result from the acceptance on the first day of each month
of the rent for the ensuing month and a reasonable and customary security deposit of not more than two months' rent in
accordance with the terms of any such Lease), (iii) except as required by applicable law and if done so in the regular course of
business, enter into any Lease not in effect on the date hereof without the prior written consent of Mortgagee, or (iv) give any
waiver, consent or approval under any Lease or any Lease Guaranty or take any other action in connection with any such Lease that
would or might impair the value of Mortgagor's interest thereunder or of the Mortgaged Property subject thereto, or impair the
interest of Mortgagee therein, or (v) consent to any assignment of or subletting under the Leases not in accordance with their
terms. Reference is hereby made for the purposes of this Section to Section 291-f of the Real Property Law of the State of New
York.
Lender Permission For Landlord to Negotiate/Modify Lease With Commercial Tenant

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The Negotiation
Lease Modification
Deferment
Abatement
Free Rent
The Commercial Landlord-Tenant Pandemic Negotiation

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 Checking the Lease
 Taking the Security Deposit
 Sending A Notice Of Replenishment
 Suing to Recover Security Deposit
The Security Deposit

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Pre-Negotiation Agreement for Commercial Store or Restaurant
PRE-NEGOTIATION AGREEMENT
Date: , 2020
Re: Agreement of lease by and between dated July 5,
2016 ( the “Lease”)
Dear Tenant:
Landlord has received Tenant’s request for a potential
restructuring of the terms of the Lease in connection with
COVID-19. Landlord may be willing to enter into
discussions with Tenant concerning the Lease
(“Discussions”), if Tenant executes a copy of this letter
agreement to confirm the understanding of the parties
with respect to such Discussions and provide Landlord
with certain information and documentation as more
particularly described below…

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 Determining How Badly the Commercial Tenant Needs the Loan
 Determining the Tenant’s Assets
 Learning Where the Tenant Keeps its Money
 Money from the Government
Purpose of Pre-Negotiation Letter for Landlord

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 Waiver of Defenses
 Confidentiality
 Listing of Assets
 Proof of Assets
 PPP Loan
 Bank Accounts
 Unemployment Benefits
 What You Want in the Pre-Negotiation Letter

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Negotiation Examples
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this “Agreement”), is made and entered into this ____day of
_____, 2020, by and between _______________, whose principal address is
____________________________ ("Landlord") and _____________, whose principal address is
______________________ ("Tenant").

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The Negotiation
Abatement
Deferment
The Lender

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 Negotiation Tips for Commercial Tenants and Landlords
 Length of time Left in the Lease/Options
 Whether a Guaranty Exists and How Good is the Guaranty
 Is there a Good Guy Guaranty
 How Viable is the Tenant in the New World/Performance of Tenant Prior to March
 The Rent Paid and Rent Landlord Would Get in New Market
 Chances Tenant Will Go Into Bankruptcy
Giving a Rent Abatement / Deferment

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Lease Modification After Negotiation

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The State of Commercial Lending
Lack of Commercial Lending Market
Lack of Credit

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NYC Guaranty Law
On May 27, 2020, the New York City Council enacted Int. 1932/2020 into law, an ordinance that is “in relation to
personal liability provisions of leases for commercial tenants impacted by COVID-19.”
As to rent and other financial obligations that arose from March 7, 2020 through September 30, 2020 (“the Covid
period”), landlords may never enforce personal guaranties of certain commercial tenants.
Under the law, the guarantor is again liable for any rent or other charge defaults arising on or after October 1,
2020.
This does not bar landlords from suing guarantors for rent and other financial obligations that arose either before
or after the Covid period.

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NYC Guaranty Law
The economic defaults from which the guarantors are relieved of enforcement include:
“utility expenses or taxes owed by the tenant under (the lease or rental agreement), or fees
and charges relating to routine building maintenance owed by the tenant under” the lease or
rental agreement.

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NYC Guaranty Law
The bar on enforcement
of the guaranty is permanent.

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NYC Guaranty Law
However, the law is limited to very few categories of commercial businesses. The law only applies to
commercial leases that are in these categories: (1) restaurants and bars banned by the Governor’s
orders from on-premises food service; (2) retail establishments shut down for being “non-essential”; (3)
gambling facilities; (4) gym, fitness centers and classes, and movie theaters; (5) hair dressers and other
cosmetic establishments. As to all of these, the enactment protects their guarantors whether or not the
business actually sustained a loss of income due to Covid.

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NYC Guaranty Law
For example, it does not apply to residential occupancies, office space, medical and quasi-medical
establishments, religious facilities, spiritual consultants, repair shops other than automobiles and
bicycles, cleaners, storage facilities, museums, galleries.
All of the guarantors who do not qualify for relief under this new law, get no relief from their
guaranties, regardless of whether Covid did or did not impair their financial condition.

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On July 6th, Executive Order 202.48 appeared.
It ended the other Executive Orders prohibiting court actions dealing
with rent--
Except it continued for 30 days, stopping commercial evictions and
commercial foreclosures.
Commercial Property Evictions

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Frustration
of Purpose

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1) The purpose that is frustrated was a “principal purpose” in making the contract, such that without it the
transaction “would make little sense”.
2) The frustration of purpose is substantial;
3) The non-occurrence of the frustrating event was a basic assumption on which the contract was made
and whether the frustrating event was unforeseeable Rockland Development Assocs. v. Richlou Auto Body, Inc.,
173 A.D.2d 690 (2nd Dep’t 1991); Crown IT Services, Inc. v. Koval-Olsen, 11 A.D.3d 263 (1st Dep’t. 2004); Warner v.
Kaplan, 71 A.D.3d 1 (1st Dep’t 2009).
“[w]here, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the
occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his
remaining duties to render performance are discharged, unless the language or the circumstances indicate the
contrary.”
Elements of Frustration of Purpose

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Generally, New York courts have narrowly construed the
frustration of purpose doctrine and when determining
whether to invoke this doctrine, they have considered
Narrow Application of Frustration of Purpose Doctrine

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Two New York appellate cases, both taking place in 1915, serve as
the foundation to the frustration of purpose.
In both cases, advertisers who were to pay for advertisements in
a yacht race souvenir program were held discharged when the
race was cancelled because of World War I.
Examples / Case Law

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Impossibility
of Performance

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Impossibility of performance occurs when an unforeseen event changes
things such that the promise or condition no longer can occur. Michael
Hunter Schwartz, Contracts (2d ed. 2015).
Impossibility must be produced by an unforeseen event, such as an act of
God, vis major, or by law. Id. at 200; Kel Kim Corp. v. Central Markets, Inc.,
70 N.Y.2d 900 (1987).
As a result, both parties’ duties under the contract are deemed discharged
by such impossibility.[1] Id.
Impossibility

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New York courts construe this doctrine narrowly and use it to
excuse performance only when the destruction of the subject
matter of the contract or the means of performance makes
performance objectively impossible. Kolodin v. Valenti, 115
A.D.3d 197, 200 (1st Dep’t 2014).
Impossibility

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Impossibility may be a defense when unforeseen government action prevents the performance of a contract. J.H. Labaree
Co. v. Crossman et. al, 100 A.D. 499 (1st Dep’t 1905). For example, in J.H. Labaree Co., defendants contracted to deliver
certain coffee to plaintiff at New York. Id. at 501. New York City board of health’s order prohibited the landing of the cargo
steamship delivering the coffee in the city. Id. The court found impossibility of performance and excused the defendant
from delivering coffee beans. Id. at 507. The Court said that if the law interferes and renders performance impossible, a
party is excused. Id. at 502. The Court quoted Chicago & Milwaukee Ry. Co. v. Hoyt, 149 U.S. 1 (1893).
There can be no question that a party may by an absolute contract bind himself to perform things which subsequently
become impossible, or pay damages for the nonperformance, and such construction is to be put upon an unqualified
undertaking when the event which caused the impossibility might have been anticipated and guarded against in the
contract, or when the impossibility arises from the act or default of the promisor; but when an event is of such a character
that it cannot be reasonably supposed to have been in the contemplation of the contracting parties, they will not be held
bound by general words which, though large enough to include, were manifestly not used with reference to, the
possibility of the particular contingency which afterwards happened.
Impossibility Example

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In Kel Kim Corp., the parties entered into a written agreement to lease a building and land in Saratoga County. Id. at 901.
The lease required plaintiff to procure and maintain public liability insurance coverage. Id. Plaintiff’s liability insurance
policy was canceled because of uncertainty as to the financial condition of its insurer. Id. Plaintiff was only able to obtain
coverage in approximately half of the amount. Id. As a result, defendant served notice of default upon plaintiff. Id. The
court concluded that the doctrine of impossibility of performance was inapplicable, as plaintiff’s inability to comply was
due to a nationwide insurance industry crisis. Id. at 902. The court said that application of the impossibility doctrine hinges
upon a showing that performance of a condition is rendered impossible by an unanticipated event that could not be
foreseen and that given the caprices over the years of the liability insurance industry, this was foreseeable and should
have been guarded against in the contract. Id.
Impossibility Example

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Where impossibility or difficulty of performance is occasioned only by financial difficulty or economic hardship,
performance of a contract is not excused. 407 East 61st Garage, Inc. v. Savoy Fifth Ave. Corp., 23 N.Y.2d 275 (1968).
For example, in 407 East 61st Garage, Inc., a parking garage contracted with a hotel to provide the hotel’s patrons with
parking. Id. at 277. The hotel closed prior to the expiration of the contract period. Id. The court considered whether the
closing of the hotel prior to the expiration of the contract period, due to the financial inability of the hotel to remain in
business subjects it to continued liability under the contract. Id. The defendant argued that it was economically impossible
for the hotel to remain in business. Id. at 281. The court said that the excuse of impossibility of performance is limited to
the destruction of the means of performance by an act of God, vis major, or by law, thus where impossibility is occasioned
only by financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy, performance of a
contract is not excused. Id. at 281. The court found that performance by the hotel was at all times possible, although
unprofitable, since the hotel could have remained in business, and thus the legal excuse of impossibility of performance
was not available to it. Id. at 282.
Impossibility Example

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Force Majeure

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Contractual force majeure clauses are clauses excusing non-performance due to circumstances beyond
the parties’ control. Michael Hunter Schwartz, Contracts (2d ed. 2015).
New York courts have narrowly defined the scope of force majeure clauses and have only excused
performance when they have contemplated the specific event that is claimed to have prevented the
performance. Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900 (1987).
Force Majeure

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New York Force Majeure Clauses do not excuse
rent and therefore are not much help during
this Pandemic.
Force Majeure

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Business
Interruption
Insurance

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Contagious Diseases Deemed Handicaps
Ownership would be wise to not implement or take any action that treats an infected
resident different from the other residents of the building. Persons with communicable
or contagious diseases are deemed handicapped or disabled persons under federal law.
See School Board of Nassau County, Florida v. Arline, 480 US 273, 284- 286 (1987).
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