Governor Cuomo’s May 7, 2020, Executive Order, 202.28 (“E.O. 202.28”) offers relief to some (tenants and property owners) and pain to others (landlords).  The order provides, inter alia, that:

There shall be no initiation of a proceeding or enforcement of either an eviction of any residential or commercial tenant, for nonpayment of rent or a foreclosure of any residential or commercial mortgage, for nonpayment of such mortgage owned or rented by someone that is eligible for unemployment insurance or benefits under state of federal law or otherwise facing financial hardship due to COVID-19 for a period of sixty days beginning on June 20, 2020. (1)

Recall that Executive Order 202.8, issued on March 20, 2020 (“E.O. 202.8”), provided for a 90-day moratorium on enforcement of either an eviction of any tenant residential or commercial, or a foreclosure of any residential or commercial property.”

The language in E.O. 202.28 seems to have closed a potential workaround for those seeking to start a foreclosure or eviction, as E.O. 202.8 prohibited only “enforcement” of a foreclosure or eviction — not initiation.  Wily attorneys may have grasped on that distinction as state courts slowly began awakening to the initiation of an eviction or foreclosure.

However, vis-à-vis evictions, the wording of E.O. 202.28 suggests that it applies specifically to initiating a proceeding for non-payment of rent.  This wording presents additional opportunities for those same wily attorneys to pursue further wordsmithing, namely whether E.O. 202.28 precludes a landlord from terminating a lease for non-payment and initiating a hold-over proceeding (rather than a non-payment proceeding).  The latest order also does not appear to deal with a landlord’s self-help remedies where no “proceeding” is initiated.

Alternatively, does E.O .202.28 prohibit the commencement of a money judgment action?  That proposition has been asked and may be answered in the suit commenced against the retailer tenant The Gap by its landlord at 1212 Avenue of the Americas in Manhattan in the Southern District of New York. See 48th Americas LLC v The Gap, Inc.  1:20-cv-03471 (S.D.N.Y, May 4, 2020) (Gap’s 8-K SEC filing, April 23 2020, also foreshadows common law defenses that it anticipates raising; see earlier legal alert on those defenses.) The landlord utilized diversity jurisdiction to bring the action in federal court in order to work around the state court non-essential suit filing prohibitions.

Another test of the judiciary’s tolerance for strict parsing of the Governor’s E.O. may occur on May 18 when the Supreme Court for New York County is scheduled to hear a show cause application as to whether a non-judicial foreclosure of membership interests in a Manhattan hotel development is within the ambit of E.O. 202.28.  See 1248 Associates Mezz II LLC v 12E48MEZZ II  LLC, Index No. 651812/2020 (Sup Ct, NY County, 4.30.2020).

It remains to be seen whether such aggressive parsing of the E.O. language on the part of landlord’s counsel will provoke the judiciary’s ire.

Security Deposits & E.O. 202.28

E.O. 202.28 also allows landlords and tenants to agree that security deposits may be used to pay outstanding rent obligations, notwithstanding G.O.L. 7-103 which requires that such money be held in trust.  This can be a “win-win” for both landlord and tenant in that the landlord receives funds in order to pay its obligations and the tenant stays in the landlord’s “good graces.”   Also beneficial to the tenant is that E.O. 202.28 provides that the security deposit is to be paid back at the rate of 1/12 of the amount used per month.  In some cases, this arrangement may offer better terms than what the landlord is offering in its proposed forbearance repayment schedule.  And, in the case of E.O. 202.28, the repayment “shall be become due and owing in no less than 90 days from the date of usage . . . “ E.O. 202.28 can serve as a baseline for tenant forbearance negotiations, i.e. repayment over a year, commencing in 90 days.  E.O. 202.28 does make clear that it is at tenant’s option to enter into an agreement to use the security deposit, and “landlords shall not harass, threaten or engage in any harmful act to complete such agreement.”  Conversely, the E.O. states that the Landlord shall permit such relief to tenants who request it if they “are otherwise facing financial hardship due to the COVID-19 pandemic.”

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.