Releasing Guarantor by Signing New Lease

Q I received a guaranty when a tenant signed a lease. The tenant and I want to sign a new lease at the end of the lease's expiration period. Do I need to get the guarantor's consent to remain liable under the guaranty, even though the guaranty says that the guarantor remains liable despite extensions and renewals of the lease?

A Yes, you will need the guarantor's separate consent to become liable for the tenant's obligations under the new lease, says Ohio attorney Abraham Lieberman. Don't rely on the language in the guaranty that says that no modifications, extensions, renewals, or changes to the lease will release the guarantor from liability under the guaranty. That language applies only to the existing lease, not to a new lease, warns Lieberman. Without the guarantor's consent to become liable under the new lease, you will end up releasing the guarantor from further liability under the guaranty, he warns.

In a new Ohio case, an owner learned this lesson the hard way. A tenant's principal signed a personal guaranty of the tenant's obligations under a 1985 lease. The guarantor died in 1994, and the tenant's assets were assigned to a new principal. The lease was set to expire on Aug. 31, 1995, but it gave the tenant an extension option. In September 1994, the owner and tenant signed a new agreement by which they agreed to be bound by the terms of the 1985 lease for extended terms ending in 2004.

In 2002, the tenant defaulted under the lease. The owner sued the tenant, and the owner was awarded $513,000. The owner sued the guarantor's estate, claiming that it was liable for those damages under the guaranty. The guarantor's estate denied that it was still liable to the owner.

An Ohio appeals court ruled that guarantor's estate was no longer liable to the owner under the guaranty. The court noted that the guaranty language stated that “no modification, extension, indulgence, forbearance, or change” granted to the tenant would release the guarantor from the guaranty or diminish his liability under the guaranty. However, the guaranty of the 1985 lease covered only extensions or renewals of that lease.

By entering into a new lease in 1994, the tenant and owner effectively released the guarantor from liability under the guaranty, said the court. The court added that clearly, the guarantor agreed only to guarantee extensions and renewals of the original lease and “to hold otherwise would be as though he were contracting from the grave,” said the court.

• Samsel Rope & Marine Supply Co. v. Gray: No. 88030, 2007 Ohio App. LEXIS 762 (Ohio Ct. App. 3/1/07).

CLLI Source

Abraham Lieberman, Esq.: Member, Stumphauzer, O'Toole, McLaughlin, McGlamery & Loughman Co., LPA, 5455 Detroit Rd., Sheffield Village, OH 44054; (440) 930-4001; alieberman@sheffieldlaw.com.