August 17, 2022

NYC Law Guarding Delinquent Industrial Tenants Tested in Court docket

Zachary Bornsteein (top rated), president, Olshan Properties, and Ilya Zavolunov, restaurateur, ZAVŌ (Olshan Properties, ZAVŌ)

Weeks right after a federal court docket deemed it potentially unconstitutional, a important pandemic-period safety for the city’s professional tenants is about to face its initial judicial take a look at.

Following ZAVŌ Cafe & Lounge stopped paying rent on its 15,000-sq.-foot place at 1011 Third Avenue in March 2020, landlord Olshan Qualities sued to collect at least $795,000 from owner Ilya Zavolunov and his son Michael, who personally confirmed ZAVŌ’s 15-calendar year lease.

The go well with was filed very last August, just after the town passed a regulation barring landlords from likely just after the personalized property of entrepreneurs or guarantors whose dining places or retail businesses had defaulted on their leases in the course of the very first 6 months of the pandemic.

Olshan argued in its complaint that its issues with ZAVŌ predate the pandemic, citing a February 2020 funds judgment awarding the landlord virtually $380,000 in back again lease.

The February judgement stipulated that ZAVŌ would spend $243,500 toward the harmony and then continue paying down the remaining harmony, additionally its standard rent, on the to start with of just about every thirty day period. When the restaurant didn’t pay back its March monthly bill, Olshan sent a treatment detect on March 6, allowing ZAVŌ 3 business enterprise days to satisfy its credit card debt. When ZAVŌ failed to do so, the landlord tried to accumulate from Zavolunov, citing the personalized promise.

But ZAVŌ’s attorney, Leo Jacobs, argued that the default transpired only immediately after the 3-working day grace time period ended, which took place to be days right after the city law went into outcome. (Although passed in May perhaps 2020, the regulation was retroactive to March 7 and later extended by June 30, 2021.)

The court docket sided with Jacobs and dominated in favor of the tenants in April, but Olshan filed an appeal. A point out appellate courtroom heard the circumstance previous week, and now the get-togethers await their decision.

Given its timing, months right after a federal court docket ruled that the city regulation could be open up to a “plausible Contracts Clause problem,” the final decision could have widespread implications for pandemic-era protections for New York’s commercial tenants.

Although his argument primarily relied on the assertion that ZAVŌ’s default transpired prior to the cure period of time, Olshan legal professional James Schwartz introduced up the ruling for the duration of his oral argument. ZAVŌ legal professionals responded that the federal ruling was not at concern.

“It does not influence our scenario,” claimed Jacobs in an interview. “It might have consequences afterwards, but not as of now.”

If the cafe loses on appeal, Jacobs explained his shoppers could be on the hook for practically $2.3 million in unpaid payments. “The regulation was passed to specifically safeguard persons in Ilya’s posture,” he mentioned.

Olshan Qualities and Schwartz did not immediately answer to a ask for for remark.

Irrespective of the outcome of the situation, it is too late for ZAVŌ. The restaurant completely shut its Third Avenue area previous August and has no designs to reopen it. A thirty day period just after Olshan filed the lawsuit, the tenant handed above the keys to the area, in accordance to court docket papers.

“ZAVŌ will be no a lot more,” wrote Jacobs in a September 2020 quick. “It has shuttered its doorways and has become a different cafe additional to the expanding listing of those people succumbing to COVID-19.”