Protect Small Business Leases

Section 1. Short title. This act shall be known and may be cited as the "small business survival act".

§ 2. Legislative intent. The legislature finds that the small business sector of the city of New York remains vulnerable at a time when New York city is more dependent than ever on small business for job growth and revenues. The New York city commercial rental market has been negatively influenced by speculators for such an extended period of time that the interest of small businesses and job creation, and the broader general economic interest of the city, are being harmed. An unacceptable number of established small businesses are being forced out of business solely as a result of the commercial lease renewal process. Whereby a breakdown has taken place in normal processes of bargaining and freedom of contract has become an illusory concept during the commercial lease renewal process. The current commercial rental market results in unjust, unreasonable, and oppressive leases for the payment of rent for commercial space in New York city. Landlords continue to exact such agreements from tenants under stress of prevailing market conditions and unequal bargaining power, without any tenants' rights to allow for bargaining in good faith to arrive at fair and reasonable lease terms. The absence of legal protection for the interests of commercial tenants in the lease renewal process has unnecessarily accelerated the closing of small businesses and resulted in lost jobs, lost tax revenues caused higher inflation and cost of living rates, decreased job growth opportunities for New Yorkers and community instability. It is the intent of the legislature, through this legislation, to give small businesses some

EXPLANATION--Matter in italics (underscored) is new; matter in brackets

[ ] is old law to be omitted.

LBD10025-01-9

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rights in the commercial lease renewal process, and therefore, a measure of predictability of future costs through a two-step procedure of mediation and, if necessary, arbitration for negotiating commercial lease renewals. This process would create a fair negotiating environment, which would result in more reasonable and fair lease terms to help small businesses survive and encourage job retention and growth in the city of New York.

§ 3. Title 22 of the administrative code of the city of New York is amended by adding a new chapter 12 to read as follows:

CHAPTER 12

COMMERCIAL LEASE ARBITRATION AND MEDIATION Section 22-1201 Scope.

22-1202 Definitions.

22-1203 Manner of service.

22-1204 Rental guidelines.

22-1205 Security deposits.

22-1206 Retaliation.

22-1207 Waiver.

22-1208 Evaluation.

22-1209 Penalties.

22-1210 Inconsistency with other laws.

§ 22-1201 Scope. This chapter shall apply only to all commercial lease renewals for commercial premises. On any occasion wherein a landlord and tenant are required to negotiate the terms of a lease renewal for commercial uses the provisions of this chapter shall apply. The provisions of this chapter shall apply to any landlord and current tenant whose lease expired on or after July first, two thousand twenty.

§ 22-1202 Definitions. a. "Administering agency" shall mean any city agency, office, department, division, bureau or institution of government, the expenses of which are paid in whole or in part from the city treasury, as the mayor shall designate.

b. "Arbitrator" shall mean the person chosen by the parties or by the American Arbitration Association, or any other recognized arbitration organization, to resolve a dispute between a landlord and a tenant concerning a commercial lease renewal or the rent to be charged for the commercial premises.

c. "Commercial premises" shall mean a building or space occupied for non-residential purposes including, but not limited to, manufacturing, retail, professional services, offices, assembling, processing, cultural and not-for-profit entities that are present in the city of New York, who have a valid commercial lease.

d. "Landlord" shall mean any owner, lessor, sublessor or other person entitled to receive rent for the use or occupancy of any commercial premises, or an agent thereof.

e. "Mediator" shall mean any person, agreed upon by the parties to the dispute or chosen by the American Arbitration Association or any other recognized mediation or arbitration association, to act as an intermediary between the parties. The mediator shall not offer a binding decision concerning the matter in dispute.

f. "Negotiation" shall mean the process of conferring with one another through conferences, discussions and compromise, to arrive at a mutually agreeable settlement.

g. "Rent" shall mean any and all consideration, including but not limited to pass-alongs, received by the landlord in connection with the use or occupancy of any commercial premises.

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h. "Services" shall mean those facilities which enhance the use of the commercial premises, including, but not limited to, repairs, maintenance, painting, heat, hot and cold water, utilities, elevator service, security devices and patrols, furnishings, storage, janitorial and landscaping services, refuse removal, insurance protection, parking spaces and facilities in common areas of the building or parcel in which the rental unit is located.

i. "Tenant" shall mean tenant, subtenant, lessee, sublessee, or any other persons lawfully entitled to use or occupancy of any commercial premises.

§ 22-1203 Manner of service. All papers and notices which, by the terms of this chapter are required to be served, shall be served by a process server, or shall be sent by first class mail and certified mail, return receipt requested or by any express mail service.

§ 22-1204 Rental guidelines. a. All leases of a commercial premises may be renewed at the option of a tenant who did not lose the right to renew a lease under the grounds described in subdivision d of this section. Such lease renewals shall be for a minimum term of ten years, provided however, that at the tenant's option, and with the written approval of the landlord, a lease of shorter or longer duration may be selected.

b. No period of lease extension required by this chapter shall extend beyond the landlord's lawful ability to rent the premises to the tenant, where such ability is limited by:

(1) the obligation to rent the premises to a third party pursuant to a bona fide lease entered into prior to the effective date of this chapter;

(2) the exercise by a third party of a bona fide option to rent the premises provided that such option was given prior to the effective date of this chapter; or

(3) any other lawful reason arising prior to such effective date.

c. Any landlord whose obligations under this chapter are limited by the provisions of this section shall not be required to negotiate or to arbitrate as otherwise provided for in this chapter but shall remain obligated to negotiate and to arbitrate a renewal lease for such period of time for which the landlord has a lawful ability to rent the commercial premises to the tenant. The landlord shall provide notice to the tenant one hundred eighty days before the termination of the lease of the basis on which the lease cannot be extended for a full ten-year term.

d. A tenant shall lose the right of renewal and a landlord may refuse to renew a lease only on the following grounds:

(1) The tenant has persistently delayed rent payments without cause. For the purpose of this subdivision, "cause" is defined as the withholding of rental payments by the tenant due to the alleged violations of the rental agreement by the landlord. In order for the landlord to be excused from renewal on this ground, the landlord must have served the tenant at least three prior notices during the term of the lease to the tenant for demand of payment within thirty days, and then show that the lessee has not paid within such thirty day period. The landlord shall not serve such notice unless the rent payment was in arrears for a minimum of fifteen days;

(2) The tenant uses the commercial premises in a manner substantially different from that described in the lease;

(3) The tenant conducts or permits any form of illegal activity on the premises;

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(4) The tenant has substantially breached any substantive obligation under the current lease and has failed to cure such breach within thirty days following written notice to cure by the landlord;

(5) Upon the termination of the current tenancy, the landlord intends, in good faith, to demolish or substantially reconstruct the premises or a substantial part thereof, or to carry out substantial work or construction on the commercial premises or substantial part thereof which he or she could not reasonably do without obtaining possession of the commercial premises. The landlord shall notify the tenant of his or her decision to reoccupy the commercial premises at least one year prior to the termination of the lease. In the event that the lessor fraudulently invokes this justification for a refusal to renew a commercial lease, the defrauded tenant may collect treble damages for any loss suffered as a result of such action;

(6) The current tenancy was created by the subletting of the property, whereby the prime tenant did not notify the landlord by certified mail of the subtenant's existence and did not obtain the written consent of the landlord. This ground is void if the landlord and tenant had agreed in the lease to allow subleasing rights without the consent of the landlord and all obligations of the prime tenant on the issue, were in compliance;

(7) It has been determined by the administering agency or by a civil court of competent jurisdiction that the tenant is a gross and persistent violator of New York city tax laws, of any license obligations related to the use of the premises or of any laws of the city of New York;

(8) Upon the termination of the current tenancy, the landlord intends to occupy the retail premises in order to carry out its own business, which cannot be the same type of business that the current tenant is operating, unless the landlord compensates the tenant at fair market value as determined by an arbitrator as restitution for the loss of such tenant's business. The landlord shall notify the tenant of his or her decision to reoccupy the premises at least one hundred eighty days prior to the termination of the lease. In the event that the landlord fraudulently invokes this justification for a refusal to renew a commercial lease, the defrauded tenant may collect treble damages for any loss suffered as a result of such action.

e. Procedure for lease renewals. (1) Where the landlord agrees to renew the lease of the current tenant, such landlord shall notify the tenant at least one hundred eighty days prior to the expiration of the lease of his or her willingness to negotiate the renewal of the commercial lease agreement. If the landlord and tenant agree, they may at any time renegotiate a new lease, with any agreed to terms and conditions, not inconsistent with the provisions of this chapter. The tenant is to continue rent payments as set forth in the lease until the parties reach an agreement on a lease renewal or until a decision is otherwise rendered through the arbitration or mediation processes described in the provisions of this subdivision. The first ninety days of the one hundred eighty-day notice period is for the purpose of negotiations. Alternatively, either party may compel the other party to the dispute to use that ninety-day period, or any part thereof, for the purposes of mediation. If either the landlord or tenant chooses mediation, he or she shall notify the other party that a mediation session is requested. The parties shall choose a mediator who is agreeable to both the landlord and tenant, or if no such person is agreeable, then the American Arbitration Association shall appoint a mediator or any other recognized

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mediation or arbitration association. The full costs of mediation shall be equally shared by both parties. The mediator shall notify the landlord and tenant, no more than ten days after his or her appointment, of the date, time, place and rules of the hearing. The mediator shall follow his or her customary rules and may render an opinion concerning the dispute, which shall not be binding on the parties. If after ninety days of negotiation and any mediation sessions, the landlord and tenant do not reach an agreement on a new lease, then the tenant is to notify the American Arbitration Association or any other recognized mediation or arbitration association, within fourteen days of the expiration of the first ninety day period, that an arbitration hearing is requested. Failure by the tenant to notify the American Arbitration Association or any other recognized mediation or arbitration association within fourteen days of the expiration of the first ninety day period shall result in the forfeiture of the tenant's right of renewal.