On March 9, 2021, New York Governor Andrew Cuomo signed into law the New York State COVID-19 Emergency Protect Our Small Businesses Act of 2021 (S471A/A3207) (the “Act”). After a full year of commercial tenants and commercial mortgagors relying on Governor Cuomo’s executive orders requiring moratoriums on evictions and foreclosures as the main source of protection, this Act provides certain relief measures to protect eligible small businesses suffering from COVID-19 hardships. Currently, the Act covers small businesses that submit a standard hardship declaration from:
(i) eviction, if the small business is a commercial tenant that (a) has 50 employees or less, (b) is resident in New York, (c) is independently owned and operated, and (d) is not dominant in its field, or
(ii) foreclosure, if the small business (a) owns, directly or indirectly, in aggregate, 10 commercial units or less (which 10 or fewer units may be in more than one property or building as long as the total aggregate number of no more than 10 units are currently occupied by a tenant or are available for rent), (b) employs 50 or fewer persons, (c) is resident in New York, (d) is independently owned and operated, and (e) is not dominant in its field.
Eviction Protections: Under the Act, (i) landlords may not take self-help measures to remove eligible commercial tenants from possession of their premises prior to May 1, 2021, (ii) landlords may not initiate an eviction proceeding for nonpayment of rent, or for holding over after the expiration of the tenant’s lease against such commercial tenants prior to May 1, 2021, if the tenant submits a hardship declaration (described below) to the landlord (otherwise, the landlord is required to file an affidavit with the court attesting that the landlord provided but did not receive a hardship declaration from the tenant), (iii) any eviction proceedings filed on or before May 7, 2020, or commenced within 30 days of the effective date of the Act shall be stayed for at least 60 days, or to such later date the chief administrative judge shall determine is necessary, (iv) an eviction warrant or judgment of possession that has been issued but not executed may not be enforced until at least May 1, 2021 (subject to the submission of a hardship declaration), and (iv) landlords may not serve a notice of petition or summons and complaint related to a foreclosure action to tenants without the inclusion of a hardship declaration and contact information of the landlord (mailing address and email) where the tenant can return the hardship declaration. Notwithstanding the foregoing requirements, small businesses may still be evicted for unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or causes a substantial safety hazard to others.
Foreclosure Protections: Pursuant to the Act, (i) ongoing foreclosure actions pending as of March 9, 2021 (including actions pending prior to March 7, 2020), or commenced within 30 days thereafter are stayed for at least 60 days (and courts are required to send mortgagors a hardship declaration), (ii) lenders must provide a hardship declaration to the mortgagee with every notice related to a foreclosure and the lender may not initiate any foreclosure actions prior to May 1, 2021, if an eligible mortgagee returns a hardship declaration, and (iii) previously issued judgments of sale or foreclosure may not be enforced prior to a status conference with the court (and if the mortgagor provides a hardship declaration, execution must be stayed until at least May 1, 2021).
The hardship declaration states that if the commercial tenant or mortgagor has (1) experienced significant loss of revenue during the COVID-19 pandemic, (2) incurred significant increase in necessary expenses related to COVID-19 protective equipment, or (3) incurred moving expenses and experienced difficulty in securing an alternative commercial property resulting in a hardship for the business to relocate during the COVID-19 pandemic, or (4) if one or more of the business’s tenants has defaulted on a significant amount of their rent payments since March 1, 2020, the landlord or lender may not initiate an eviction action or foreclosure action until at least May 1, 2021, if the tenant or mortgagor confirms such pandemic-related hardship by signing and returning the hardship declaration to the landlord or lender, as applicable. A hardship declaration creates a rebuttable presumption that the tenant or mortgagor, as applicable, is suffering a financial hardship. Courts are required to seek confirmation that the mortgagor has received a hardship declaration and that the mortgagor has not returned it. If the court determines a mortgagor has not received a hardship declaration they shall stay the proceedings for a reasonable time, no less than 10 days, to ensure the mortgagor received and fully considered the hardship declaration. Commercial tenants will receive similar protections under the Act.
The Act further provides a moratorium on actions to foreclose on delinquent taxes or to sell a tax lien relating to commercial real property until May 1, 2021, if the small business submits a hardship declaration. In addition, the Act prohibits discrimination in the determination of whether credit should be extended to any small business that owns commercial real property or negative reporting to a credit reporting agency because such small business has been granted a stay of any mortgage foreclosure, tax foreclosure, or tax lien sale.
The foregoing protections will be in place at least through May 1, 2021. Governor Cuomo’s press release for the Act makes note that he has reached an agreement with the New York State Legislature to expand the protections under the Act. The intent is for the Act to cover small businesses with up to 100 employees and any business with up to 500 employees that was closed to “in-person operations by executive order or department of health directive for two or more weeks between May 15, 2020 and May 1, 2021.”
This Act is the companion law covering commercial tenants and mortgagors to the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 signed into law by Governor Cuomo in December 2020 and provides similar protections to residential tenants. The New York Legislature noted in its justification for extending similar protections to small businesses and their commercial landlords that since small businesses are the backbone of our economy and communities and have been disproportionately negatively impacted by the COVID-19 pandemic, they need similar protections to those provided to vulnerable residential tenants and their landlords. According to the New York Legislature, this Act “seeks to give these small businesses a fighting chance to emerge from this pandemic by helping both the business and their small business commercial landlord.”
We will continue to monitor this legislation and related efforts and provide updates. Please do not hesitate to contact the Morrison & Foerster team if you have any questions.