The New Jersey Appellate Division recently issued an unpublished decision that shows that good leases and guaranties can help landlords make and save money. HLP Assocs., L.P. v. Carpet City Inc., Et Al., A-4134-13T3 (App. Div., March 17, 2015). The trial court granted landlord’s motion for summary judgment and found the tenants and guarantor liable for a judgment in the amount of $324,119.20 plus costs because the lease and guaranty were clear and unambiguous.
The case was affirmed on appeal. The case is important for landlords to ensure successful collection against defaulting tenants and guarantors.
This case involved a breach of a commercial lease by tenants and a guarantor that failed to pay rent. The initial lease was for a primary term of 10 years. The tenants had the option to renew the lease for two additional five-year extended terms. The lease contained a limited personal guaranty, which stated that “on the condition that Lessee is not in default of Base Rent, Additional Rent or any other term or condition of the Lease, this personal guaranty shall expire and become void at the end of the Fifth Lease Year”. At the conclusion of the Fifth Lease Year the tenants were behind in rent. Although the landlord did not then declare a default, it later instituted a repossession action. After the parties entered into two lease amendments, and rent was unpaid, the landlord filed a complaint in the Law Division to recover the arrears, and the parties moved for summary judgment.
The guarantor argued that the guaranty expired at the end of the first five years of the lease because the landlord did not give notice of a default during such five year period. The trial court disagreed with the guarantor and granted summary judgment to the landlord. The trial court stated that “guaranty agreements should be strictly construed” and found that this guaranty was “clear and unambiguous” and “did not require a notice of default”. The trial court then found that since tenants were in default, the guaranty did not expire and continued throughout the remaining years of the lease.
The Appellate Division also agreed with the landlord and affirmed the trial court. The Appellate Division added that the landlord was also not required to send a notice of default since the separate remedies available to landlord were “cumulative rather than exclusive”. The Appellate Division then rejected guarantor’s argument that the guaranty was no longer binding since the parties failed to specifically reference guarantor’s continued obligation to guaranty the rent payments in the lease amendments. The Appellate Division found that the lease amendments did not modify or extinguish the guarantor’s promise to personally guarantee, and each lease amendment stated, “[e]xcept as modified herein, all of the terms, covenants and provisions of the [original] Lease are hereby confirmed and ratified and shall remain unchanged and in full force and effect.”
For landlords, this decision illustrates the importance and value of preparing a good lease and guaranty. In this case the documents appear to have been properly prepared in order to persuade the courts to grant the landlord summary judgment. And by quickly obtaining summary judgment, the landlord was able to make and save money.
Do you have the lease, guaranty, and procedures you need to win a dispute, and should they be updated to maximize your opportunities? For example, should you send default notices and have guarantors sign lease amendments? Evaluating your legal issues and addressing them correctly, requires careful review on an individual basis. It is also vital to have counsel familiar with these issues for your commercial, retail, industrial and/or residential property needs.
Jerry A. Nelson is a Shareholder and member of Stark & Stark’s Business & Corporate, Commercial, Retail and Industrial Real Estate and Real Estate, Zoning & Land Use Groups.