Many commercial tenants in NYC, including many medical businesses, have been severely affected by the pandemic. With businesses shut down for extended periods of time and/or operating at limited capacity, revenues have plummeted. Despite this, the high cost of renting commercial spaces in NYC remains unchanged. It is only a matter of time before landlords are going to start seeking unpaid rents in Court.
The Housing Court in New York City is a complex system. Tenants who understand non-payment proceedings, and how COVID-19 has affected these proceedings, will be able to resolve any rental dispute with the most favorable outcome possible.
This article will provide commercial tenants with an overview of non-payment eviction proceedings in NYC and how the COVID-19 pandemic has impacted these proceedings.
WHAT IS A NON-PAYMENT PROCEEDING?
In a non-payment proceeding, the landlord seeks to collect unpaid rent, required payments, or other ancillary charges pursuant to a lease agreement. The typical non-payment proceeding in NYC housing court took 6-9 months prior to the pandemic. Post-COVID, non-payment proceedings could easily take more than one year. This is great news for new york commercial tenants.
A non-payment proceeding in NYC Housing Court progresses in different stages:
STEP 1: RENT DEMAND
A non-payment proceeding must be initiated with service of a rent demand, which specifies the months and amounts of rent that the landlord claims are owed. The HSTPA (Housing Stability and Tenant Protection Act), passed in June 2019, now requires the landlord to make this request in writing. The landlord must give the commercial tenant at least 14 days to cure. (To “cure” means to “pay.”) If a landlord fails to comply with these requirements, the case is considered defective and can be dismissed by the Court even if the lease signed between the parties allows for a shorter notice.
STEP 2: DISPOSSESS (PETITION AND NOTICE OF PETITION)
If the tenant has not paid all outstanding rental arrears after receiving the timely rent demand, the landlord can convert the matter to a Dispossess and seek the eviction of the tenant. A Dispossess consists of a Petition and Notice of Petition. The court papers must, among other obligations, notify the tenant of which court to go to in order to respond to the proceeding.
STEP 3: FILING AN ANSWER
After the tenant has received the Petition and Notice of of Petition, the landlord has now purchased an index number from the Court and the time begins tolling (running) for the tenant to file an answer and respond to the proceeding. The HSTPA now gives a tenant ten days to file an answer. Failure to respond on time will allow the landlord to seek a default through the Court and proceed with the eviction.
Conversely, an answer is filed, the Court will notify both sides of a Court date, typically about a week after the filing. If the commercial tenant is a corporation or an LLC, it cannot represent itself and the Court will eventually require it to hire an attorney.
STEP 4: COURT APPEARANCES
NYC commercial housing cases are heard in a part of the Civil Court that exclusively deals with commercial eviction proceedings. Cases are first marked for resolution in the hopes the parties will come to a settlement. If a case cannot be resolved, then the Court will eventually place the case on the trial calendar. While adjournments were routinely granted before the 2019 Rent Laws, the new laws now make it a requirement to grant at least one fourteen day adjournment if requested by the tenant. Courts may, and often do, grant additional adjournments at their discretion.
STEP 5: SETTLEMENT/TRIAL
The majority of cases that end up in Court result in settlements with stipulations. Very few landlord attorneys want to go through the process of a trial, and will almost always offer deals where they grant the tenant time to pay the arrears (the past-due rent) in exchange for an agreement that allows them to obtain a judgment. Commercial tenants should try to avoid consenting to a judgment for as long as possible, but the details of each case, potential defenses, and the landlords’s managing style will usually determine the favorability of any deals. Once the tenant consents to a judgement, the Courts will require the tenant be given at least 30-45 days to pay the arrears, but tenants or their attorneys can usually negotiate much longer payouts. Tenants have the right to refuse a settlement and request a trial to resolve any dispute.
STEP 6: JUDGMENT
After a trial, the judge will issue a judgment for all rent and fees proven by law, and tenants will have a very limited amount of time to pay the judgment. Generally, this is the only time that the NYC Housing courts require commercial tenants to pay anything quickly.
STEP 7: WARRANT OF EVICTION
After a judgment is issued, whether by agreement or after a Court Order, the landlord can then seek a warrant of eviction through the clerk’s office. Obtaining warrants in NYC Courts can be very time-consuming, as it requires a lot of paperwork. Generally, it will take at least two weeks for warrants to be issued, but it is not unusual for it to take up to six weeks. However, in many instances, it may take much longer than that if there was an error in the application. Once a warrant is issued, if the tenant has defaulted on an agreement or Court order, the landlord now has a right to schedule an eviction.
STEP 8: MARSHAL’S NOTICE
Before a landlord can schedule an eviction, the tenant must be served with a Marshal’s notice informing the tenant that the Marshal can proceed with an eviction. The 2019 Rent Laws now require this notice to be given fourteen days in advance, meaning that no eviction can take place for at least another two weeks after service of the Marshal’s notice.
STEP 9: ORDER TO SHOW CAUSE
Even after a warrant is issued and the Marshal’s notice is served, an eviction isn’t inevitable. Tenants have the right to file an Order to Show Cause to seek relief, including additional time to pay any arrears outstanding. Several important factors determine whether the Court will grant this extension, including proof of ability to pay, time needed to pay, the length of the case, and the judge presiding over the case. While commercial tenants certainly have to fight harder than residential tenants to receive extensions, Courts are still very tenant-friendly and routinely grant extensions seeking additional time.
THINGS A LANDLORD CANNOT DO DURING AN EVICTION PROCESS
A landlord cannot lock a tenant out during the eviction process. If a landlord does this, it gives the tenant a defense to the whole eviction process, and the tenant has a right to not pay rent. A landlord also cannot do anything else that can be construed as an eviction or bad faith actions, including harassment, defamation, etc. before an eviction is granted by the court.
Before the pandemic, the fastest amount of time between demand and eviction was about three months, but it usually took more like six to nine months.
HOW COVID 19 HAS AFFECTED COMMERCIAL HOUSING COURT IN NYC
Unfortunately both the Tenant Safe Harbor Act passed in June 2020 and the Federal CDC order passed in September 2020 only offer protection for residential tenants. However, commercial tenants continue to be protected by the Governor’s Executive Orders. On September 20, 2020, the New York Governor issued Executive Order 202.64 which extended the prohibition of initiating a proceeding or enforcement of an eviction against commercial tenants until at least October 20th, 2020. It is unclear if any additional laws or Executive Orders will be passed in the near future to further protect commercial tenants. Absent any new laws or orders, commercial tenants will still be protected even past October 20th, 2020. Landlords would still have to go through the lengthy process above to evict a tenant.
To say that the COVID-19 pandemic has caused the NYC Housing Court system to grind to a halt would be an understatement. Like all industries that require many people to gather indoors, COVID-19 has significantly affected the NYC Courts ability to operate. It was typical pre COVID-19 for Housing Courts to be packed daily with people, which has made reopening a logistical nightmare.
NYC Housing Courts currently have no timetable in place for reopening in-person appearances for new cases, and have yet to hear a single new case filed post-COVID. At the time this article was written, NYC Housing Courts are only hearing cases that were pending prior to the COVID-19 shutdown, and those cases are being heard almost entirely virtually. It is very possible that new cases will not be heard well into 2021, and even the pending cases prior to COVID-19 may not be eligible for evictions until next year.
HOW COMMERCIAL TENANTS CAN TAKE ADVANTAGE OF THE CURRENT SITUATION
The most important leverage commercial tenants in NYC have right now is the length of time it would take for a landlord to get to court and complete an eviction. The process was already expensive and time-consuming before COVID-19, but now it has become even more so. Any landlord or lawyer who threatens immediate eviction proceedings if rent is not paid is either ignorant or bluffing.
Landlords who are aware of the situation are likely more open to favorable out-of-Court settlements and even possible lease adjustments or partial rent waivers to resolve disputes. When courts do reopen, there will be a major backlog of cases which can be used to the tenants’ advantage if negotiations with the landlord fails. Tenants can use the maximum amount of allotted times to ensure the case is delayed as long as possible. For example, tenants should use the full ten days the Court allows before answering the proceeding. Also, before any settlement discussions, tenants should request as many adjournments as the Court will allow. Tenants should also request proof of all charges alleged in the Court papers, as landlords’ attorneys may not have those documents readily available and will need time to obtain them.
It’s important to note there is still a lot of uncertainty regarding this unique situation and the matter is extremely fluid as executive orders, laws, and Court practices change almost daily. Keeping up-to-date on the latest information is necessary when it comes to understanding the best path forward and ensuring the best possible outcome during these difficult and rapidly-changing times.