How Good (Guy) Is That Guaranty?

Author:Mr Victor Metsch
Profession:Smith Gambrell & Russell LLP
 
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A "good guy guaranty" is generally understood to be a limited personal guaranty for a lease obligation - an obligation that applies only to the time the entity tenant remains in occupancy prior to the return of the leased premises to the owner/landlord, at which point the personal obligation/liability ends.

"Good guy" and other guaranties are often the subject of contentious litigation. Six recent in Supreme Court, New York County, examples follow:

ET 46 Main St. LLC v. Lord & Guy, LLC, 2016 NY Slip Op 31473(U) (Sup. Ct. N.Y. Co., Kern, J.) [decided on July 27, 2016]

ET 46 Main Street LLC sued Lord & Guy, LLC and Gavin Abadi to recover unpaid rent claimed to be due pursuant to a commercial lease agreement (with Lord & Guy) and a personal guaranty (by Abadi).

The Court summarized the lease and the guaranty:

The relevant facts are as follows. On or about January 24, 2014, plaintiff, as landlord, entered into a commercial lease agreement (the "Lease") with Lord & Guy, as tenant, for premises in a building located at 46 Main Street, East Hampton, New York (the "premises"). Pursuant to Article 3 of the Lease, "Tenant agrees to accept the Demised Premises in its 'as in' condition and acknowledges and agrees that Landlord shall not be responsible to perform any work, make any improvements, alterations or other modifications to the Demised Premises to prepare the same for Tenant's occupancy." Concurrently with the execution of the Lease, Abadi, a principal of Lord & Guy, entered into a personal guaranty of the Lease (the "Guaranty"). Pursuant to the Guaranty, "[t]he Guarantor [Abadi] hereby irrevocably and unconditionally guarantees, to Landlord and its successors and assigns, the full, faithful and timely payment, performance, and observance by Tenant [Lord & Guy] of all of the payments, covenants and other obligations of Tenant under or pursuant to the Lease in accordance with the terms herein."

The subsequent developments:

In or around December 2014, Lord & Guy stopped making rent payments. Plaintiff mailed invoices addressed to Lord & Guy at the attention of Abadi on December 1, 2014, January 1, 2015, February 1, 2015, March 1, 2015 and April 1, 2015. Plaintiff has submitted the affidavit of Elie Tahari ('Tahari"), the managing director of plaintiffs owner, stating that Lord & Guy failed to pay or object to any of the invoices. In response, defendants have submitted the affidavit of Abadi stating that he spoke with Ran Daniel ("Daniel"), plaintiffs in-house attorney and accountant, on many occasions beginning in December 2014 to object to "paying the rent" due to alleged misrepresentations made during the lease negotiations. Abadi's affidavit further states that a Tiffany & Co. store was located across the street from the premises at the time of the negotiations, which was a critical factor in Lord & Guy's decision to rent the premises, but that the Tiffany & Co. store vacated its space shortly after Lord & Guy's took possession of the premises. Also, Abadi's affidavit states that the condition of the premises "was not what was represented," and that Lord & Guy spent $80,000.00 in repairs to make the premises usable.

Concluding that:

In the present case, plaintiff has made a prima facie showing of its entitlement to summary judgment on its cause of action for breach of a personal guaranty against Abadi as it has submitted the Guaranty, which is absolute and unconditional, and the affidavit testimony of Tahari that Lord & Guy failed to pay rent from December 2014 to the present due and owing pursuant to the Lease and that Abadi also failed to pay said rent as required by the Guaranty.

In opposition, defendants have failed to raise a triable issue of fact. Defendants' argument that Abadi should be excused from his obligation to pay rent under the Guaranty due to plaintiff's alleged misrepresentation of the condition of the premises is without merit as it is completely belied by the terms of the Lease. The Lease explicitly states that the tenant accepts the premises "as is" and that landlord "acknowledges and agrees that Landlord shall not be responsible to perform any work, make any improvements, alterations or other modifications to the Demised Premises to prepare the same for Tenant's occupancy."

Defendants' argument that Abadi should be excused from his obligation to pay rent under the Guaranty due to plaintiff's alleged "misrepresentation" regarding the proximity of the Tiffany & Co. store is also without merit as Abadi's affidavit does not allege that plaintiff made any representation whatsoever to defendants that the Tiffany & Co. store would be located near the premises during Lord & Guy's tenancy or that plaintiff knew of the store, its location or any plans to vacate its location.

Further, defendants' argument that plaintiffs damages should be reduced by the amount of the security deposit, which was retained by plaintiff, is without merit as the Guaranty explicitly states that "[t]he Guaranteed Obligations shall in no way be reduced or otherwise affected by any security deposit held by Landlord under the Lease, it being expressly agreed that the Guaranteed Obligations are in addition to the amount of any such security deposit." Thus, defendants have failed to raise a triable issue of fact and the portion of plaintiff's motion for summary judgment on its cause of action for breach of a personal guaranty is granted.

James Leonard 6, Inc. v. Six & Cornelia Assoc., 2016 NY Slip Op 31472(U) (Sup. Ct. N.Y. Co., Rakower, J.) [decided on August 1, 2016]

Six & Cornelia Associates leased space for an optician's office to James Leonard, Inc. with performance of the lease guaranteed by Leon Folgen and James Zisman, former vice presidents of James Leonard. James Leonard defaulted under the lease and Six and Cornelia applied a $24,000 security deposit against a rent claim of $115,000 (app.).''

The Court found that Six & Cornelia was entitled to a judgment against James Leonard in the full amount claimed (a sum in excess of the $24,000 security deposit).

The "good guy" guaranty provided that:

Under all circumstances, including Tenant's default, and in addition to the security deposit posted under this Lease, Guarantor guarantees to Landlord the payment and performance of Tenant's obligations under and in accordance with the Lease, including without limitation, (i) the payment of Fixed and Additional Rent which accrue under the Lease up to and including the date Tenant and any party claiming under Tenant vacate the entire Demised Premises, the delivery of the keys therefor and, at Landlord's option, the execution by Tenant and delivery of an instrument of surrender and release ... (emphasis added).

Folgen and Zisman claimed "that they are not liable for damages that occurred after the [James Leonard] vacated the premises in accordance with the Guaranty Agreement and not liable for the monetary damages and attorney's fees."

Six & Cornelia relied upon the words "without limitation" in the guaranty in a claim for expenses of reletting of space, including rent concessions and brokerage fees.

Folgen and Zisman argued that "they are only responsible for the Tenant's obligations up to and including the date the Tenant and any party claiming under Tenant vacate the entire Demised Premises."

And the...

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