December 7, 2016
I represented a commercial landlord in Manhattan on a retail space. Retail is not doing so great these days, and this was a specialty store. The landlord had given the tenant many chances to catch up. It just wasn’t meant to be.
Tenant’s attorney announced that tenant was leaving and they gave us the requisite six months’ notice under the Good Guy Guaranty. Thanks for that, but you are also several months behind in the rent.
I pointed out to tenant’s counsel that the Good Guy contained this important language: “[Guarantors] guarantee to Landlord…the full and timely payment…[of] the ‘Obligations’”.
“Obligations” was defined in the Guaranty as, “the full and prompt payment of all Fixed Annual Rent, Additional Rent, and all other charges and sums due and payable by Tenant under the Lease….”
The Guaranty lasted, “through and including that date that Tenant…shall have completely performed all of the following”….
The “following” included not only handing in the keys buy also included, “paid to Landlord all Obligations to and including the date which is the later of (x) the actual receipt by Landlord of the Obligations (y) the surrender of the demised premises, and (z) receipt by landlord of the Demised Premises.”
In other words, surrender was not enough to cut off the Guarantors’ obligations. Tenant would also have to be paid up fully on the date of surrender.
What’s the Lesson? The lesson is that words in contracts matter and if the retail rental market is soft (like now) tenants should be negotiating for Good Guy Guarantees that don’t require payment in full as a prerequisite to cutting off liability. The other lesson is that both landlord and tenant must read the Good Guy Guaranty with a fine tooth comb before a surrender. My partner, Jay B. Itkowitz, has written extensively on Good Guy Guarantees.