Make Sure Guaranty Applies to Renewals and Extensions
If you require a tenant to have a guarantor before signing a lease, consider whether you want the guaranty to apply to renewal or extension terms created by future amendments to the lease. If so, make sure your lease and amendments specify that the guaranty will be “continuing,” so that the guarantor remains on the hook.
In a recent Florida case, an owner learned this lesson the hard way. It signed a lease with one three-year renewal option with a retail tenant. The owner required a guaranty in order to move forward with the deal. After the initial lease term and renewal were complete, an amendment extended the option to renew for five years and increased the amount of rent. There were two more lease renewals not specified in the original lease. The guarantor didn’t sign any of these modifications.
When the tenant failed to pay rent during the last renewal term, the owner sued the tenant and guarantor. The owner and guarantor each asked a trial court for a decision in its favor.
The owner argued that the language of the guaranty contemplated modifications, renewals, and extensions of the lease, so the guarantor was still responsible for rent payments.
The trial court ruled in favor of the owner, finding that the “language of the guarantee is reasonably susceptible to differing interpretations and is therefore ambiguous.” It concluded that the guaranty was a “continuing guaranty” for which the guarantor was bound to for as long as the lease was in effect. The guarantor appealed.
A Florida appeals court reversed the decision of the lower court. The appeals court noted that, under Florida law, a guaranty for a lease can be continuing, but it must expressly state that it is intended to cover future transactions for the guarantor to be liable for extensions and renewals.
The appeals court explained that a guaranty is continuing “if it contemplates a future course of dealing during an indefinite period, or if it is intended to cover a series of transactions or succession of credits, or if its purpose is to give to the principal-debtor a standing credit to be used by it from time to time.” Thus, a continuing guaranty covers all transactions, including those arising in the future, which are within the description of contemplation of the agreement.
However, the appeals court also found that the plain language of the lease governed. The guaranty referred to the lease, which had a term of three years with “an option to renew this Lease for one additional three-year term.”
Thus, the guaranty was limited to the term of the lease and its solitary three-year option to renew, concluded the appeals court. It stated that, although the landlord allowed the tenant to renew the lease for two additional terms, past the initial renewal, the guarantor wasn’t responsible for those lease renewal terms—because it wasn’t a continuing guaranty. For the guarantor to be responsible, the lease would’ve had to expressly state that it “was intended to cover future transactions” [Haggin v. Allstate Invs., Inc., February 2019].