On October 20, 2026, the First Department handed down the long-anticipated decision in 516 West 26th Realty LLC v. George Billis Galleries, Inc. (available here). The case concerns New York City’s “Guaranty Law,” which prohibits landlords from enforcing personal guaranties on commercial leases between March 7, 2020 and June 30, 2021, for tenants forced to shut down, close to the public, or stop serving food and beverages for on-premises consumption, because of Governor Cuomo’s executive orders during the COVID pandemic. See NYC Admin. Code § 22-1005. According to the legislative history, the New York City Council passed the law to stave off the shuttering of tens of thousands of small businesses whose owners faced the potential of immediate personal bankruptcies.
The Guaranty Law predictably generated a flurry of litigation about its enforceability, effect, and scope. But the weightiest challenge bouncing around the federal and state trial courts has been to the law’s constitutionality under the Contract Clause of the Tenth Amendment of the United States Constitution. See U.S. Const., art. I §10 (“No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”). 516 West 26th Realty is the first state appellate authority to confront this issue squarely.
Following the Southern District of New York and the Second Circuit’s guidance in similar federal challenges by landlords in the Melendez line of cases (these cases were tossed fairly late in proceedings for jurisdictional defects), the 516 West 126th Realty trial court had held that the Guaranty Law did violate the U.S. Constitution. Today, the First Department reversed. In upholding the Guaranty Law and writing for a 4-1 majority, Justice Rosado noted that while the First Department “makes no judgment as to the [law’s] wisdom,” the Guaranty Law “passes constitutional muster.”
The court applied the well-established Contracts Clause test, considering: “(1) whether the contractual impairment is in fact substantial; if so, (2) whether the law serves a significant public purpose, such as remedying a general social or economic problem; and, if such a public purpose is demonstrated, (3) whether the means chosen to accomplish this purpose are reasonable and appropriate.” While holding that, yes, the Guaranty Law imposed a “substantial” impairment on landlords, the Court held that the law had a significant public purpose (“staving off the cascading effects of the unprecedented-in-our-times pandemic”) and was a “reasonable and appropriate” means of advancing that purpose.
The gist of the dispute between the majority and the dissent (authored by Justice Friedman) was the degree of deference courts ought to afford the City legislature in weighing the third prong — whether the law was “reasonable and appropriate.” Echoing Judge Abrams from the Southern District and a panel of the Second Circuit in the Melendez cases, Justice Friedman argued that a more tailored law could have accomplished the statute’s purpose (e.g., a deferral versus a permanent abrogation, a condition that the guarantor be an owner of the business, a needs-test requirement). The dissent also observed that the City had not established that landlords “were in a better position” than the guarantors “to sustain the economic burden” of tenants’ inability to pay.
In contrast, the majority applied something closer to a “rational basis” level of scrutiny. The City, the majority reasoned, had considered several options to reduce the economic harm of the COVID-era closures before passing a law limited in both scope and time. And applying “substantial deference” to the City, the court held that the Guaranty Law was an appropriate and reasonable means of mitigating the catastrophic economic effects of the pandemic on small businesses.
While New York Court of Appeals’ review is likely, this is a significant win for commercial tenants that fall within the scope of the Guaranty Law, and a significant setback for landlords.