Guarantors Off Hook Despite Tenant's 'Spotty Payment History'

April 1, 2003

A lease had two guaranties that said each would terminate “on the 42nd month” of the lease (February 1999) “in the event that no default exists.” The tenant made several late rent payments, including its February 1999 rent payment. Despite this “spotty payment history,” the owner agreed to extend the lease for another five years. The tenant later defaulted. So the owner sued the tenant and the guarantors. The guarantors argued that they weren't responsible because the guaranties had terminated in February 1999.

A lease had two guaranties that said each would terminate “on the 42nd month” of the lease (February 1999) “in the event that no default exists.” The tenant made several late rent payments, including its February 1999 rent payment. Despite this “spotty payment history,” the owner agreed to extend the lease for another five years. The tenant later defaulted. So the owner sued the tenant and the guarantors. The guarantors argued that they weren't responsible because the guaranties had terminated in February 1999. The owner claimed that the guaranties hadn't terminated because the tenant had paid its February 1999 rent late, so it had been in default.

A Georgia appeals court dismissed the lawsuit against the guarantors, ruling that the guaranties had terminated because the tenant had cured—that is, fixed—the lease violation in a timely manner. The tenant had paid its February 1999 rent and all applicable charges and late fees by Feb. 19 and so wasn't in default for the remainder of the month [Roswell Festival, LLLP v. Athens Intl., Inc.].

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