Commercial tenant case could have citywide implications

Zavo restaurant and bar

Queens Daily Eagle

A lawsuit against two Queens restaurateurs currently making its way through the Appellate Division stands to give a pandemic-era commercial tenant protection it’s first real legal challenge in New York City.

ZAVŌ Restaurant & Lounge in Manhattan and its owners Ilya Zavolunov and his son Michael Zavolunov, who both live in Queens, were sued by landlord Olshan Properties after the father and son, who personally guaranteed the restaurant’s 15-year lease, didn’t pay rent in March 2020.

Though they missed the March 1 rent deadline, a cure process didn’t begin until March 6 when Olshan sent the restaurateurs notice. The Zavolunov’s did not receive the notice until March 7, the day a law that prevents landlords from holding guarantors of restaurants or businesses personally liable if they defaulted on their leases during the first six months of the pandemic retroactively went into effect.

The father and son team had three days until the close of the cure period, which they also missed. While in the past, the two would have been liable for the lease, Jacobs argues that they didn’t default until after the tenant protection was in effect.

“They fit within the new law and because they fit within the new law, the personal guarantor was no longer liable,” Jacobs told the Eagle.

Olshan Properties argued that the actual default occurred on March 1, the day they first missed the rent. However, the court initially sided with Jacobs. Olshan challenged and the case was argued in front of the Appellate Division, First Department earlier this month.

Zavo Restaurant Interior

The case centers around the cure period, something attorney James Schwartz, who is representing Olshan, argued in front of the appellate justices.

“The issue is what does the cure period mean?” Schwartz said. “Liability is established for March 1, for all of the rent that had accrued. A cure is designed to free the guarantors of the tenant.”

Schwartz did not respond to request for comment.

Olshan and ZAVŌ are currently waiting on a decision from the court.

Whatever they rule, Jacobs says the ruling will have an impact on commercial tenant protection throughout New York City.

“This law, as it would be developed by the First Department Appellate Division, would impact what the definition of when a default occurs and when a guarantor becomes liable,” Jacobs said.

Also on the line are obviously implications for Jacobs’ clients. If they are found to be liable, the Zavolunovs will be on the hook for a little over 2 million dollars. Attorney Leo Jacobs, who is representing ZAVŌ Restaurant & Lounge in a case putting a New York City commercial tenant protection law to the test.

Olshan says in their initial suit that financial issues with ZAVŌ began weeks before the pandemic.

In February 2020, a money judgement awarded Olshan around $380,000 in back rent. The ruling stipulated that the restaurant would pay $243,500 toward the balance, continue paying off the back rent and continue paying its regular monthly rent on the first of every month.

Regardless of the Appellate Division’s ruling, Jacobs is confident the case will make its way toward the Court of Appeals. “If we win, we’re not appealing. If they lose, they will likely appeal,” Jacobs said. “And if we lose, we’ll likely appeal to the Court of Appeals — so it’ll continue on until there is the last word and the last word is from the Court of Appeals.”

Whatever the final word on the case is, when it is issued, ZAVŌ will not reopen. The restaurant closed in September, a month after the lawsuit was first filed. Jacobs said the restaurant and its owners were a victim of the pandemic.