A commercial lease is always more valuable with a guarantee. Having multiple parties to collect against minimizes risk and provides a level of protection for a commercial landlord. However, issues can arise on enforcement when a commercial landlord amends or modifies a lease.
For instance should a commercial landlord have each guarantor sign off on the modification or amendment, even if they are not required to do so? Should a commercial landlord send notice to each of the guarantors, even if the lease does not require you to do so? What if the original lease obligation is set to end? If a modification or amendment will lengthen the term, will it be enforceable against the guarantor? What if the guarantor thought they were getting out of the obligation, but for the amendment or modification?
Although the answers to these questions will depend generally on state law, these and other guarantee issues are all important questions that should be addressed prior to the amendment and modification with thoughtful and business-oriented counsel. Following is a brief discussion on how New Jersey Courts deal with the same.
Guarantees Enforced That Are Clear and Unambiguous
New Jersey Courts for years have generally enforced guarantees, so long as they were properly prepared. See, United States Rubber Company v. Champs Tires, Inc., 73 N.J. Super. 364 (App Div. 1962). In United States Rubber Company, a guaranty was enforced after the Court concluded that, it was “an absolute guaranty”, that was “absolute, unconditional and continuing”, and “the clarity of the language of the guaranty was unmistakable”. However, a common question is what if the tenant says the language was not clear?
If Material Terms Do Not Change, Modification/Amendment May Not Effect Liability
Some courts in New Jersey and other states have refused to enforce guarantees in certain situations, where the material terms of the lease are changed. However, so long as the overall liability does not change, New Jersey Courts are apt to enforce the guarantee. See Center 48 Ltd. Partnership v. May Dept. Stores Co., 355 N.J. Super. 390 (App. Div. 2002). In Center 48, the Court held a modification, which increased the rent and increased the liability of guarantors did not increase the overall liability as this was contemplated by the lease. But what about change in the size of the store? Change in the nature of the store, say from a pick-up location to a full service store? Or, changing the insurance limits?
Obtain Outside Counsel to Discuss your Commercial Lease/Guarantee Issues
These are just a few reasons that commercial landlords should carefully consider guarantee issues. Evaluating these issues requires careful review on an individual lease basis. It behooves landlords to speak with sound and competent counsel prior to making these decisions. As they say an ounce of prevention, goes a long way. Having an attorney familiar with these issues and how they will be enforced is critical to ensuring certainty. The attorneys in Stark & Stark’s Commercial Real Estate Group can provide you the insight you need to address these and other questions for your commercial lease needs.