When landlords negotiate amendments or extensions of leases with
existing tenants, it can be easy to overlook a very simple but
important part of the documentation process: the reaffirmation of
an existing guaranty of lease.
A reaffirmation of guaranty from a guarantor of the tenant's
obligations under a lease can be as simple as a few sentences
appended to the end of the lease amendment, whereby the guarantor
certifies that it consents to the terms and conditions of the
amendment, and affirms that its obligations under the guaranty
remain in full force and effect.
Without such a reaffirmation, if the tenant defaults and the
landlord needs to enforce the lease guaranty, a guarantor may be
able to raise a defense to such enforcement by claiming that the
modifications in the amendment are so material that they go beyond
the scope of the obligations under the original guaranty, and that
the guaranty did not extend to the tenant's obligations under
the lease as amended.
Furthermore, if a tenant negotiates a new or substitute lease with
the landlord, or amends and restates an existing lease, a landlord
can run the risk that a court may decline to impose liability on a
lease guarantor if such "new" lease includes provisions
that were not contemplated in the original lease. For example, in
Lo-Ho LLC v. Batista, 881 N.Y.S.2d 33 (A.D. 1 Dept. 2009),
a New York court declined to find that a lease guaranty included
obligations under a so-called "Extension of Lease"
negotiated between the landlord and tenant because the original
lease did not contain an express renewal or extension option and
the terms were too different from the original lease to be
considered a mere extension of the lease. The court ruled against
enforcement of the lease guaranty even though the guaranty provided
that "this guaranty shall remain and continue in full force
and effect as to any renewal, change or extension of the
Lease." See also Atlantic Properties LLC v. DiFiore,
968 N.Y.S.2d 847 N.Y.City Ct. Jun 24, 2013.
A well-drafted guaranty should include language that provides that
the guaranty will not be affected by any extensions, amendments,
renewals or terminations of the lease. The guaranty should also
include language providing not only that no notice from the
landlord is required as to modifications to the lease but also that
no consent from the guarantor will be required with respect to any
such modifications.
Nevertheless, depending on the jurisdiction, it can be left to a
court to interpret the language of the guaranty and determine
whether the changes to the lease are so material that a
guarantor's liability should be limited or discharged.
Therefore, as an additional safeguard, it is always prudent for a
landlord to request a reaffirmation of guaranty, rather than to
rely on waivers in the guaranty of lease, particularly when a side
letter or substitute lease is entered into with an existing tenant,
or other modifications that may not be expressly contemplated in
the lease guaranty.
This article is presented for informational purposes only and is not intended to constitute legal advice.