Lease Didn't Modify Pre-Existing Guaranty

September 30, 2006

A lease indicated that the tenant was signing a guaranty “in conjunction with” the lease. The lease said that the tenant could revoke the guaranty upon sending a written notice to the owner, along with a security deposit of $35,000. The tenant didn't pay its rent and vacated its space. The owner sued the guarantor in November 2004. The tenant revoked the guaranty in August 2005 and gave the owner the $35,000 security deposit. The guarantor then argued that his liability was limited to the amount of the security deposit.

A lease indicated that the tenant was signing a guaranty “in conjunction with” the lease. The lease said that the tenant could revoke the guaranty upon sending a written notice to the owner, along with a security deposit of $35,000. The tenant didn't pay its rent and vacated its space. The owner sued the guarantor in November 2004. The tenant revoked the guaranty in August 2005 and gave the owner the $35,000 security deposit. The guarantor then argued that his liability was limited to the amount of the security deposit.

A Georgia appeals court ruled that the guarantor's liability wasn't limited to the amount of the security deposit. The guaranty was unconditional and continuing, noted the court. Plus, the guarantor had signed the guaranty almost two months before it signed the lease—not “in conjunction with” signing the lease. The court discovered that the guaranty said it would remain in effect until the guarantor revoked it, and that the guarantor would remain liable for debts the tenant had incurred before the revocation date. The guaranty was never “incorporated” into the lease, attached to the lease, or made a lease exhibit, said the court. Therefore, the lease didn't modify the guarantor's liability under the guaranty.

  • The Cupboard, LLC v. Sunshine Travel Center: No. A06A1435, 2006 Ga. App. LEXIS 1135 (Ga. Ct. App. 9/6/06).

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