Baby Got Back…Ed Up By New York Court

Last month, in one of the latest COVID-19 related lawsuits to trickle through the New York courts, a New York Supreme Court held in favor of the commercial tenant, Brooklyn Babies and Toddlers, LLC (“Baby”) and its guarantor, Mary Ann O’Neil (“Guarantor”), finding that Baby’s contractual obligations to pay rent were made objectively impossible and were excused under the doctrine of impossibility (267 Dev., LLC v. Brooklyn Babies & Toddlers, LLC, 2021 NY Slip Op 30796(U) (Sup.Ct.)).

The landlord, 267 Development, LLC (“267 Development”), and Baby are parties to a 10-year lease agreement that is personally guaranteed by Guarantor. Baby was required to close for business as a result of Governor Cuomo’s Executive Orders closing certain businesses throughout New York State in response to the Covid-19 pandemic. Baby stopped paying rent and 267 Development commenced an action against Baby and Guarantor for $93,554.94 to recover rent arrears and attorneys’ fees. In opposition to 267 Development’s motion, Baby and Guarantor argued that Baby’s performance was excused by the doctrines of force majeure, impossibility, and frustration of purpose, and that Guarantor’s performance was further excused by New York City Administrative Code § 22-1005 (“§ 22-1005”), which prohibits commercial landlords from seeking monies for lease arrears from a non-tenant who personally guaranteed a lease agreement on behalf of a business that was forced to close as a result of the Executive Orders signed by Governor Cuomo.

The court rejected Baby’s force majeure defense, finding that because there was no force majeure clause in the lease agreement, force majeure could not be asserted as a defense to the breach of contract claim. Instead, the court held that Baby’s performance was excused by the common law doctrine of impossibility, finding that the closures mandated by Governor Cuomo’s Executive Orders in response to the COVID-19 pandemic had rendered Baby’s performance under the lease agreement “objectively impossible” while such mandated closure was in effect. The court also held that this mandated closure was unforeseeable—a required element of the doctrine of impossibility—and could not have been addressed in the lease agreement. Having found that Baby’s performance was excused under the doctrine of impossibility, the court did not consider Baby’s frustration of purpose defense. Accordingly, the court denied 267 Development’s motion for summary judgment, finding that all of its causes of action against Baby and Guarantor were barred by the doctrine of impossibility. The court also granted summary judgement to Guarantor on her counterclaim for commercial tenant harassment against 267 Development for violation of New York City Administrative Code § 22-902(a), which, among other prohibitions, prohibits commercial landlords from attempting to enforce a personal liability guarantee that it knows or reasonably should know is not enforceable pursuant to § 22-1005.

This case joins the short list of other recent cases (e.g., UMNV 205–207 Newbury, LLC v. Caffé Nero Americas Inc.; International Plaza Associates LP v. Amorepacific U.S. Inc.; 188 Ave. A Take Out Food Corp. v. Lucky Jab Realty Corp.) that held in favor of tenants in their efforts to avoid paying rent during the COVID-19 pandemic.  Despite these decisions, however, many other courts have reached the opposite conclusion and held that tenants do owe all or at least most of their rent during the COVID-19 pandemic (including during government-ordered shutdowns).  As a result, there is still no clear answer as to who is on the right side when it comes to determining if rent is due.

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