Material Changes to Lease Didn't Relieve Guarantors of Rent Liability

Facts: Two guarantors agreed to be liable for rent payments under a lease for stationery store space. Shortly before the lease was to expire, the tenant and the owner of the shopping center where the store was located entered into an amendment, extending the lease term. The amendment provided that the tenant was obligated to pay its minimum annual rent in equal monthly installments on or before the first day of each calendar month. After the tenant failed to pay the minimum rent and operating costs that were due, the owner tried to enforce the guaranty. But the guarantors refused to honor their rent obligations and pay the tenant’s default. The owner sued the tenant and the guarantors. It asked a trial court for a judgment in its favor without a trial. A trial court ruled in the owner’s favor. The guarantors appealed.

Decision: An Illinois appeals court upheld the trial court’s ruling in the owner’s favor.

Reasoning: On appeal, the guarantors asserted that they did not agree to guarantee the extension of the assigned lease for the modified terms; they never signed another guaranty after the lease was materially modified; and the guaranty they originally agreed to expired and therefore, they were no longer responsible for the tenant’s rent.

The appeals court agreed with the trial court that the lease did not require notice to the guarantors in the event of an amendment and that the guaranty was broad enough to encompass changes to the lease, without notice to the guarantors. The appeals court noted that the guaranty provides that it “won’t be affected and the liability of the undersigned shall not be extinguished or diminished by…any extensions, renewals, amendments, indulgences, modifications, transfers or assignments in whole or in part of the Lease by Landlord, whether or not notice thereof is given to Guarantor and whether or not Guarantor’s consent thereto is obtained.” The guaranty also specified that the provisions of the lease may be “altered, affected, modified, amended, or changed by agreement between Landlord and Tenant at any time, or by course of conduct, without the consent of or without notice to Guarantor, including, without limitation, any extension of the Term pursuant to the Lease or otherwise.”

The appeals court also determined that an assignment of the lease didn’t affect the guarantors’ responsibilities. The guaranty stated that an assignment of the lease “shall not affect this Guaranty or Guarantor’s liability and obligations hereunder, except for an assignment or sublease to a ‘permitted Transferee’ which will ‘discharge this Guaranty.’” But the guarantors provided no evidence that the assignee was a permitted transferee under the lease which might extinguish their obligations under their guaranty, said the appeals court.

• Inland Western Oswego Douglas, LLC v. Rand’s-Tara’s Cards & Gifts, d/b/a Hallmark, Duane Hoadley and Janeen Hoadley, July 2016