First Department Upholds NYC's "Guaranty Law"
On October 20, 2026, the First Department upheld New York City’s pandemic-era “Guaranty Law” (New York City Administrative Code § 22-1005). The 4-1 ruling reversed a decision declaring the law unconstitutional, marking a significant setback for commercial landlords pursuing individual guarantors. The case is 513 W. 26th Realty LLC v. George Billis Galleries, Inc., Case No. 2025-00996. A copy of the decision is available here.
The Guaranty Law bars enforcement of personal guaranties of commercial leases if (1) the default or other event triggering liability occurred between March 7, 2020, and June 30, 2021, and (2) the commercial tenant was subject to the restrictions under Executive Orders 202.3, 202.6, or 202.7. The law does not cover every pandemic-related lease default.
Background
In George Billis Galleries, a landlord sought to recover unpaid rent from an art gallery and its personal guarantor. After an earlier appeal, the addition of the City of New York as a defendant, and further development of the record regarding the law’s legislative history and purpose, a New York County Supreme Court judge found the law unconstitutional under the Contracts Clause of the United States Constitution.
Federal litigation had previously offered landlords encouragement: a Federal District Court invalidated the law after the Second Circuit allowed the challenge to proceed. Melendez v. City of New York, 668 F. Supp. 3d 184 (S.D.N.Y. 2023). But that ruling was vacated on procedural grounds because the plaintiff failed to establish standing. Bochner v. City of New York, 118 F.4th 505 (2d Cir. 2024). The First Department treated the Second Circuit’s earlier analysis of the Guaranty Law as persuasive, not binding.
The Court’s Decision and Reasoning
The George Billis Galleries court applied the three-part Contracts Clause Test, which asks: (1) whether the law substantially impairs a contractual relationship; (2) if so, whether it serves a significant public purpose, such as remedying a general social or economic problem; and (3) if that purpose is shown, whether the means chosen are reasonable and appropriate.
The majority found substantial impairment because the guaranty was a separate obligation, despite the tenant’s continuing liability. It nevertheless found a significant public purpose in limiting the Covid-19 pandemic’s broader economic harm. Deferring to the City Council’s judgment, the court found the means reasonable and appropriate based on the legislative record, the law’s limited coverage and 16-month window, and landlords’ remaining remedies against tenants. The court noted that while it “makes no judgment as to the [law’s] wisdom,” the Guaranty Law “passes constitutional muster.”
The Dissent
Justice Friedman dissented, stressing that covered guaranty claims were permanently eliminated, not merely deferred. He questioned the absence of requirements for financial need, business ownership, or reopening, as well as compensation for landlords. In his view, the record did not justify shifting losses to property owners potentially no better able to bear them than the tenants or guarantors.
The central disagreement concerned judicial deference. The majority emphasized that the City was regulating private contracts, not escaping its own obligations. It credited the legislative record and statutory limits: individual guarantors, specified businesses, a 16-month window, and preservation of other lease remedies. The City did not need to prove its policy was the best available.
What Landlords Should Do Now
The George Billis Galleries ruling does not erase lease debt. Landlords may pursue recovery against tenants. Corporate guarantors remain outside the Guaranty Law’s protection. The law only applies to personal guarantors and lease defaults occurring under certain circumstances during a specific time period. Personal guaranties remain enforceable if the default occurred outside the timeframe of the Guaranty Law or if the tenant’s default was not due to specified Executive Order restrictions.
Before seeking recovery under a personal guaranty, landlords should check the guarantor’s identity, business restrictions applicable to the tenant, and the timing of the event triggering personal liability. Landlords should focus collection efforts on legally available remedies rather than assume that further appellate review of the Guaranty Law by the New York Court of Appeals will restore liability for personal guarantors.
For questions regarding this decision, contact Matthew Parker, Daniel Troy, or another member of our Business Litigation Practice.
Disclaimer
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