Senate Bill S40A

                                
 
BILL NUMBER: S40

SPONSOR: HOYLMAN
 
TITLE OF BILL:

An act to amend the real property law, in relation to judicial interpre-
tation of commercial leases regarding whether COVID-19 was an event that
could have been foreseen or guarded against

 
PURPOSE OF BILL:

The purpose of the CLEAR Path Forward Act is to reduce litigation,
encourage landlords and tenants to negotiate a settlement without going
to court, minimize business disruption in our communities, and bring
clarity and consistency to judicial interpretations across the state
with respect to whether COVID-19 was an event that could have been fore-
seen or guarded against in a commercial lease contract.

 
SUMMARY OF SPECIFIC PROVISIONS:

Subsection (1) provides that, where the court determines that perform-
              

ance under a commercial lease contract is frustrated or made objectively
impossible, the court shall no longer need to make the secondary deter-
mination of whether COVID-19 constitutes an unforeseeable event.

Subsection (2) provides direction to the court adjudicating the issue of
impossibility or frustration of purpose by providing objective factors
for consideration of a court of competent jurisdiction, including but
not limited to: the tenant's loss of income compared to similar time
periods, prohibitions and guidance from governmental authorities, and
whether the temporary loss in income is capable of being recovered. This
provision further provides that the Court shall review financial
documentation in camera for privacy considerations, to the extent neces-
sary.

The act shall take effect immediately.

 
JUSTIFICATION:

Under New York law, a party to a commercial lease may establish impossi-
bility of performance or frustration of contract by proving that (1) the
destruction of the subject matter of the contract or the means of
performance makes performance objectively impossible and (2) the impos-
sibility must be produced by an unanticipated event that could not have
been foreseen or guarded against in the contract. The CLEAR Path Forward
Act prevents unnecessary litigation and divergent court decisions across
the state with respect to the second element of whether the event which
caused the business disruption was foreseeable. This is not a determi-
nation that should be delegated to our overburdened landlord and tenant
courts to determine on a case-by-case basis. If COVID-19 was unforeseea-
ble in Rochester, the scope of the pandemic was similarly unforeseeable
in New York City and the rest of the state.

Importantly, the litigant will still need to prove that performance was
made "objectively impossible." The goal is to give clear guiding princi-
ples for commercial lease re-negotiations across New York so the parties
are encouraged to reach an amicable settlement as opposed to over-bur-
dening the court system with litigation.

We face a situation where our landlord tenant courts will be stretched
beyond their limits once they are re-opened. The ability of the landlord
tenant courts to conference each commercial lease case for settlement as
per custom will be significantly impaired due to calendar congestion and
social distancing requirements. As such, it remains essential to encour-
age the parties to a commercial lease to attempt settlement negotiations
in accordance with clear parameters that are fair to both sides.

CLEAR Path Forward also puts our local small businesses on equal footing
with their large "chain" competitors who may be more likely to take an
aggressive posture and accumulate attorney fees in a protracted liti-
gation to achieve a substantial rent abatement. This bill discourages
unnecessary litigation and brings both sides to the bargaining table to
minimize business disruptions and provide a clear path forward to both
landlords and tenants.

 
PRIOR LEGISLATIVE HISTORY:

S.8359 of 2020 (Hoylman): Died in Judiciary
A.10423 of 2020 (Cruz): Died in Judiciary

 
FISCAL IMPLICATIONS:

To be determined.

 
EFFECTIVE DATE:
This act shall take effect immediately.