Guarantor, Not Tenant, on Hook for Lease Obligations

Facts: A guarantor promised to fulfill the lease obligations of a restaurant tenant if the tenant breached the lease. It signed a “good guy” unconditional guaranty. The tenant stopped paying rent because it claimed its sales had declined because scaffolding built in front of its space by the owner interfered with its entrance. After a series of legal proceedings with the tenant, the owner sued the guarantor for the unpaid rent. A trial court ruled in favor of the owner. The guarantor appealed.

Decision: A New York appeals court upheld the decision of the lower court.

Reasoning: The guarantor argued that two leases existed for the space for the same time period and, therefore, it couldn’t be held liable for lease obligations on one of the leases. It claimed that the court should enforce the other lease, which the guarantor had no obligations under, against the tenant. But the court clarified that the two leases were for the same tenant and for the same time period; the second lease that the guarantor hadn’t signed a guaranty for was simply a formality in order to procure a liquor license for the restaurant. It was the same exact lease on the same exact terms, but the copy of the lease used to get the liquor license didn’t require a guaranty. The guarantor—not the tenant—was still on the hook for the lease, said the appeals court.

The appeals court noted that, to enforce a written guaranty, the owner would have to prove an absolute and unconditional guaranty, the underlying debt, and the guarantor’s failure to perform under the guaranty. Here, the owner had shown all three. The guaranty expressly referred to the lease between the tenant and owner; the trial court had determined that there was $75,000 in past-due rent; and the guarantor had refused to pay the owner when the tenant failed to.

• Deltoid, LLC v. Ghorcian, March 2014