Lease Guarantees – How to Preserve Them

It is commonplace for landlords to ask for and obtain guaranties of their tenant’s lease obligations.  Such guaranties are useful to almost all landlords, whether the lease in question is for a large commercial space in a shopping center or is a much smaller transaction, such as, a parent who guaranties a lease for his or her college student child.

 One problem with a lease guaranty (or a guaranty of any obligation) is that the guaranty can be lost or released without the landlord being aware of it.  Any change to the underlying obligation, such as an increase in rental payment, an extension of the lease, or an increase in the term, raises a question regarding whether the landlord can enforce the new provisions of the lease against the guarantor and sometimes whether the landlord can enforce the guaranty at all.  To combat this, guaranties usually include language saying that the guaranty applies to all amendments, modifications and extensions and further stating that the guarantor waives any defenses that he might otherwise have if the lease is modified.

While putting protective provisions in the guaranty can be of help, there is only so much that careful drafting can achieve in protecting the landlord when the lease is modified.  The best course of action if you are a landlord who holds a guarantied lease is to make sure that any change to the underlying lease is in writing and that the guarantor, as well as the tenant, has signed the document that modifies the lease.  Although this article is aimed primarily at landlords, the above advice is good for anyone who is owed an obligation that is guarantied by a third party.

 Rod Fluck


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