Lease Amendments, No New 'Consideration,' Release Guarantor from Liability

A tenant signed a lease to operate a restaurant in a not-yet constructed building on the owner's property. The tenant's guarantor signed a guaranty several days after the lease was signed. Later, the lease was amended several times without the guarantor's knowledge to, among other things, require the tenant to pay all taxes, maintenance, and insurance costs after the owner constructed the building. When the tenant didn't pay its rent, the owner sued the guarantor. The guarantor argued that the guaranty was unenforceable.

A federal court dismissed the owner's lawsuit because the guaranty was unenforceable. The court noted that a guaranty that's signed after a lease must be supported by new “consideration—that is, a payment, compensation, or something of value given in exchange for the guarantor's promise to guarantee the tenant's lease obligations. But here, there was no new consideration. Also, the guarantor agreed to guarantee only “the terms of the original lease,” said the court. The amendments to the lease, which the guarantor never agreed to, were so “material—that is, important—and detrimental to the guarantor that the guarantor was released from its obligations under the guaranty [Birts v. Mott].