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Page 4 — Property Management Quarterly — January 2017
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A step above the rest.
U sually attached to a lease is
an Exhibit “E” titled “Guar-
anty.” How many of us have
taken the time to really delve
into the “whereas” and “now,
therefores” to understand what guar-
antors are really getting themselves
into?
First things first – I turned to my
trusty dictionary! Guarantor is a per-
son, organization, thing or entity that
agrees to be responsible for another’s
debt or performance under a contract,
if the other fails to pay or perform.
Still not feeling at ease with the
term, I looked up “guarantor” syn-
onyms – backer, sponsor, patron and
surety. I then looked up words that
rhyme with guarantor – at death’s
door; canker sore, carnivore, either-or;
go in for; in line for, more and more;
nevermore, not long for, predator;
promisor, saddle sore, stand up for;
stick up for; to die for; tug-of-war,
warrantor. Ouch! Ouch! I could not
catch my breath.
After reading three different lease
guaranties, ranging from one para-
graph to five pages, I called Amanda
Halstead, seeking relief from legal jar-
gon and asked for clarification.
Sessions: Why get a guaranty?
Halstead: A personal guaranty
should be considered anytime a land-
lord is unsure of a tenant’s creditwor-
thiness. It gives the landlord a second
pocket to look in should the tenant
default.
Sessions: Who should be named as
a guarantor?
Halstead: If a tenant is an entity, a
landlord should consider naming any
principals of the entity and his/her
spouses. Over the years, I have seen
many leases that were guaranteed
by individuals who
intentionally put
the bulk of their
assets in their
spouse’s names in
an effort to protect
their assets. It natu-
rally follows that
if the tenant is an
individual, the ten-
ant’s spouse should
be named as a
guarantor.
Sessions: Are
there any provi-
sions that a land-
lord should be sure to include in the
guaranty?
Halstead: It’s important that a guar-
anty be one of payment and perfor-
mance. In other words, we want the
guarantor to be both liable for the
payment of monetary obligations and
for the performance of any covenants
contained in the lease.
If there is more than one guarantor,
it should be noted that their obliga-
tions are joint and several, mean-
ing that they are both 100 percent
responsible for the obligations there-
under, and that any release of one
guarantor shall have no effect on the
liability of the other.
A guaranty also should include a
jury waiver. Attorney’s fees become a
central issue in litigation and a jury
trial can cost up to three times as
much as a trial to the court. Landlords
usually are careful to include jury
waiver provisions in their lease but if
that same language is not included
in the personal guaranty, a guarantor
can request a jury trial, adding to the
time and expense of litigation.
Sessions: Are the provisions of a
guaranty normally
negotiated? In other
words, is the scope
of the landlord’s
guaranty often
diminished during
a lease negotiation?
Halstead: It’s
becoming increas-
ingly more com-
mon for landlords
to agree to limit
a guarantor’s
exposure under a
guaranty. By way
of example, I see
guaranties that are
limited to the initial term of the lease,
guaranties that are limited to a par-
ticular dollar amount and, more fre-
quently as of late, guaranties that are
limited to a 12-month rolling period.
Some guaranties may even be limited
to a particular item, like reimburse-
ment of a tenant improvement allow-
ance. These limitations can be struc-
tured in any number of ways.Where
we ultimately land depends in large
part on the financial strength of the
tenant and a landlord’s risk tolerance.
Sessions: Is the landlord required to
get the guarantor’s consent whenever
there is a change in the lease terms?
Halstead: I have to answer that
with the typical attorney response –
it depends. Often the guaranty will
include language indicating that the
guarantor obligations will apply to the
lease as the same may be modified,
amended or extended and that the
guarantor’s consent is not required.
This language typically is enforceable.
That said, there is case law, which
would suggest that material and
unforeseen changes to the lease
terms might serve to excuse a guar-
antor who has not consented. By way
of example, an amendment whereby
the square footage of the premises is
doubled or tripled could be problem-
atic for a landlord. It’s good practice to
have a guarantor ratify and confirm
his guaranty in connection with any
amendments or modifications to the
lease.
Sessions: What actions by the land-
lord would relieve the guarantor from
liability?
Halstead: Any release of the ten-
ant, fraud in the inducement or any
other defense that might render a
lease unenforceable, or any other act
that might limit the tenant’s liability
under the lease.
Sessions: Will a lease assignment or
subletting affect the guarantor’s obli-
gation?
Halstead: It can unless the landlord
has included language in the guar-
anty indicating that the guaranty
shall remain in full force and effect
notwithstanding any assignment,
sublease or change in ownership.
Sessions: When a tenant defaults,
how often have you pursued a guar-
antor?
Halstead: Any time I sue a tenant,
I name the guarantor in the lawsuit.
Often, particularly in the instance
of a tenant who is a single-purpose
entity, the guarantor may be a land-
lord’s only means of collecting those
amounts due to it.
The importance of a personal guar-
anty and the language that should
be included within it should not be
underestimated. It can truly be a
useful tool in the event of a tenant
default.s
Legal
Steven S.
Sessions
CEO, Sessions
Group LLC, Denver
Amanda H.
Halstead
Member, Mills,
Schmitz, Halstead,
Zaloudek LLC,
Denver