Give 'Consideration' in Guaranty You Demand After Lease Signing

If you demand a guaranty from a tenant after you've signed the lease, make sure the guaranty includes “consideration—that is, payment, compensation, or something of value given in exchange for the guarantor's promises, advises New York City attorney Jeffrey A. Moerdler.

A tenant typically provides a guaranty at the lease signing. So getting the lease signed is viewed as the consideration for the guaranty, Moerdler explains. But if you demand that the tenant give you a guaranty after the lease is signed, there must be additional consideration, he says. For example, you could give a nominal $1 payment to the guarantor. Or if the tenant is affiliated with the guarantor, you could agree to not exercise—or to delay exercising—your remedies for an existing default by the tenant, Moerdler says. If you don't provide additional consideration to the guarantor, he or she may argue—and a court may agree—that the guaranty is invalid and unenforceable.

For example, more than a month after signing a lease, a California shopping center owner demanded that the corporate tenant's president and his wife sign a guaranty. The tenant gave the owner the guaranty. Later, the tenant failed to pay its rent, and the owner sued the guarantors for the rent due. The guarantors refused to pay, arguing that the guaranty was unenforceable. An appeals court agreed. The court noted that the owner demanded the guaranty more than a month after the lease was signed, not during lease negotiations. Because the guaranty wasn't given to induce the owner to sign the lease, the owner should have given the guarantors consideration—such as money—when it asked them to sign the guaranty, the court said [Theme Family Partnership “A” v. Rosenbery].

CLLI Sources

Jeffrey A. Moerdler, Esq.: Partner; Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, Chrysler Ctr., 666 3rd Ave., New York, NY 10017; (212) 692-6700; jamoerdler@mintz.com.