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.