Landlord's Settlement with Tenant Doesn't Let Guarantor Off the Hook

What Happened: Roughly 18 months into a five-year lease, the landlord sued to evict a tenant for late payment of rent. After settling with the tenant out of court, the landlord asked the tenant’s guarantor to pay the rent for the remaining months of the lease. The guarantor refused, arguing that it wasn’t liable because the settlement agreement ended the tenancy. So, the landlord sued for breach of the guaranty. Round 1 went to the landlord when the Minnesota court awarded it summary judgment. The guarantor appealed.

Decision: The state appeals court agreed that the settlement didn’t relieve the guarantor of its obligation to pay rent for the remainder of the lease.

Reasoning: The settlement agreement required the tenant to “terminate the tenancy and vacate the premises by June 1, 2018.” Accordingly, the guarantor claimed that it didn’t owe any rent after June 1, 2018. But the court found that the settlement agreement “unambiguously did not relieve” the tenant of its post-June 1, 2018, rent payment obligations, citing two provisions of the agreement:

• “The parties stipulate and agree that they are settling only claims regarding the possession of the Leased Premises” [emphasis added]; and
• “The parties neither release [n]or waive any contract claims under the Lease [or] the Lease Guarantees.”

And because the tenant still had to pay rent after June 1, 2018, the guarantor was also still on the hook.

• R&S Crossing v. Af Enters.: 2020 Minn. App. Unpub. LEXIS 84, 2020 WL 413727