Does Tenant Relocation End Guarantor's Lease Obligations?

A consent-for-modification clause will stretch only so far.

When you secure a lease guaranty you expect the guarantor to remain accountable for the tenant’s lease obligations throughout the entire lease term. However, guarantors may be able to wriggle off the hook if the underlying lease is modified without their consent. One way to plug this loophole is to require the guarantor to consent in advance for future lease changes. While effective, this solution isn’t 100 percent safe, especially when the future lease change involves relocating the tenant to a completely different space.   

Advance Consent for Future Lease Modifications

A so-called consent-for-modification clause does two things to protect you. First, it ensures that future lease changes don’t relieve the guarantor of liability. It also spares you the need of having to go to get the guarantor’s consent every time you want to make minor changes to the terms of your relationship with the tenant subject to the guaranty.

Typical consent-for-modification clauses are broad in scope, with the guarantor acknowledging its continuing liability for the tenant’s performance for the full term of the lease, even if the lease is modified, rights are waived, time limits are extended, remedies are forgone, etc. The guarantor also generally waives its right to receive notice of changes to the terms of the landlord-tenant relationship.

Model Language

Guarantor hereby waives each and every notice to which it might otherwise be entitled under the Lease and expressly consents to any extension of time, leniency, modification, waiver, forbearance, or other change which may be made in any of the terms and conditions of the Lease by the parties thereto or their successors or assigns. No such change, modification, extension, waiver, or forbearance shall release Guarantor from any liability or obligation hereby incurred or assumed, and Guarantor expressly waives any notice of default in or under the terms of the Lease.

Does Consent-for-Modification Include Tenant Relocation?

While consent-for-modification clauses may appear ironclad, guarantors may be able to challenge them when the lease isn’t simply modified but modified in a substantial way. The guarantor can then contend that the altered relationship is materially different from what it signed on for and that imposing the change without its consent invalidates the guaranty.

One common example of a substantial change that may create an escape route for the guarantor is when a tenant relocates to a different space at the landlord’s property. Consider these venerable cases.

Landlord Wins

Some courts have ruled that a tenant’s relocation doesn’t relieve a guarantor of liability to the landlord under the lease.

Example: After a shopping center tenant moved to a different space in the same mall, the guarantor claimed it was no longer liable for the tenant’s financial obligations under the lease. Luckily for the landlord, the lease contained a consent-for-modification clause. South Carolina’s top court ruled for the landlord, finding that the guarantor had failed to prove that the tenant’s relocation “materially affected” the guarantor’s obligations under the guaranty [Florentine Corp. Inc. v. Peda I, Inc., 339 S.E.2d 112].

Landlord Loses

A consent-for-modification clause may not be enough to keep a guarantor liable if the court believes that the relocation to a different space is a change so substantial as to constitute a new lease.

Example: A landlord relocated a shopping center tenant to a new space in the mall that was twice as large and at a much higher rent. Because the lease contained a consent-for-modification clause, the landlord didn’t bother to notify or seek the guarantor’s consent to the relocation, which was memorialized in the form of a new, signed written agreement that the landlord and tenant called the “Amendment.” The tenant defaulted, and the landlord sued the guarantor.

The Colorado Supreme Court upheld dismissal of the case, finding that the relocation and resulting changes to the tenant’s operations and financial liabilities wasn’t just a mere modification of the original lease but the creation of a new lease, a change that went well beyond the scope of the consent-for-modification clause. “We do not believe that, in signing the guarantee agreement and consenting to ‘any modification,’ [the guarantor] contemplated a change in the very subject matter of the lease,” the court explained [Green Shoe Manufacturing Company v. Farber, 712 P.2d 1014 (Colo. 1986)].

Takeaway

A consent-for-modification clause is generally worth including in a guaranty, if the guarantor will accept it. But while it affords you some degree of assurance of your right to make subsequent lease changes without the guarantor’s consent, the clause will stretch only so far. You should be able to keep the guarantor on the hook as long as the lease changes you make are minor and relatively inconsequential to the guarantor’s obligations. However, it won’t help you if the changes substantially alter the original lease agreement. Relocating tenants to a different space within the property may stretch your consent-for-modification clause beyond the breaking point, particularly when the move requires the tenant to alter its operations and pay significantly higher rent and lease costs.

Bottom Line: Rather than let a court decide the issue, you should strongly consider notifying and getting the guarantor’s consent to a tenant relocation even if your lease contains a consent-for-modification clause.