NYC Law Protecting Commercial Tenants’ Personal Assets Upheld
From left: Ilya Zavolunov, Gastronom, ZAVŌ, and Zachary Bornstein, President, Olshan Properties (Olshan Properties, ZAVŌ)
In a win for commercial tenants, an appeals court upheld the city’s most important protection in the pandemic era, which landlords had challenged as unconstitutional.
The appeals department judges ruled in favor of ZAVŌ Restaurant & Lounge, the owner of which had personally guaranteed the lease with its landlord, Olshan Properties. Olshan tried to hold ZAVŌ owners Ilya Zavolunov and his father Michael responsible for at least $ 795,000 in bills that had piled up as of March 2020.
The now closed restaurant had defaulted on its lease for 15,000 square meters at 1011 Third Avenue in early March and returned the keys in August. In the same month, Olshan sued his tenants who had personally guaranteed the lease, which is not uncommon for commercial tenancies.
The property owners filed the case despite a new city law prohibiting landlords from pursuing the personal assets of owners or guarantors whose restaurants or retail businesses had defaulted on their leases during the first six months of the pandemic.
Olshan argued that his problems with ZAVŌ arose before the pandemic, and therefore the renter should not be given any protection from the law. When a state judge sided with the tenants in April, Olshan appealed in what was the first test of the city’s new law.
In a separate lawsuit from other commercial landlords, a federal court ruled in October that city charter can be challenged under the US Constitution’s contract clause, which prevents states from passing laws that interfere with contractual obligations. Olshan’s attorney mentioned the ruling during a hearing earlier this month, but the state appeals court did not see the decision as an issue.
“We have examined the plaintiff’s remaining allegations and find them useless,” wrote the jury.
ZAVŌ attorney Leo Jacobs called it a “just and just choice given the circumstances of the post-Covid world”.
Olshan Properties and its attorneys, who might next take the case to the state’s highest court, did not immediately respond to requests for comment.
The law was introduced by Manhattan Democrat Carlina Rivera, a candidate for city council chairperson. Several council members voted against, saying the government could not interfere in private contracts. The move, which was later extended by lawmakers to March 31, 2021, was supported by small businesses and their trade groups, including the New York City Hospitality Alliance.
In the still-active federal lawsuit, first-generation immigrants, Marcia Melendez and Ling Yang, argued that they were struggling to make their mortgage payments due to non-paying commercial tenants.
Contact Erin Hudson