When does your lease guaranty expire?

A recent case in New Jersey, Montpen SC, L.L.C. v. Mathews Art, Inc., Superior Ct. New Jersey, No. A 5036 09T3 (March 30, 2011), highlights the importance of negotiating, and knowing, the terms of your lease.

In Montpen, the principal owner of a commercial lessee signed a lease with a guaranty, in which he guaranteed up to one year’s rent for any default during the initial term of the lease, or during an extension or renewal of the lease.  The lease specifically stated that if the tenant were simply to “holdover” after the expiration of the lease, without an “extension” or “renewal” of the lease,  then the lease was neither extended nor renewed.

The lease was extended multiple times, but at one point, when it came time to renew or extend, the parties could not agree on the rent.  The tenant stayed in the space for a year, making monthly payments to the landlord.  Eventually the tenant stopped making payments.  By the time the tenant vacated the premises, he owed nine months of rent. 

As a result, the landlord sued based on the guaranty.  However, the court held that the terms of the lease were clear and did not leave room for interpretation.  The guaranty only applied during the term of the lease, or during an extension or renewal of the lease.  The “holdover” period, without a written extension or renewal, did not constitute a renewal or extension, and was therefore not covered by the guaranty.

Whether you are the landlord or the tenant, if your lease has a guaranty, it is important to understand its terms and how and when it can come into play!