When a tenant enters into a lease, they agree to pay all rent sums and in some cases additional rent as they become due and owing. When a tenant defaults on a lease, New York law does not require a landlord to mitigate their damages if they elect not to re-let the space, and the tenant remains liable for unpaid rent throughout the duration of the lease term.
Good Guy Guaranty
Commercial leases executed between the landlord and tenant often include a personal guaranty executed by the tenant personally to ensure the payment of rent. A “Good Guy Guaranty” is a document executed by an individual or individuals of a corporation leasing space which, on the one hand, protects the tenant by limiting their liability under the lease in the event of default, and on the other hand, protects the landlord by allowing them to proceed against an individual person for any non-payment of rent that may accrue during the lease term.
In any scenario, Good Guy Guaranty generally apply to obligations that have accrued prior to the surrender of the leased space, and the accrued obligation remains due and owing even after the tenant has vacated the space. Russo v. Heller, 80 A.D.3d 531.
The surrender of the space, also known as the “ Surrender Date ” in a Good Guy Guaranty is a defined event in the guaranty that a guarantor/tenant is required to follow in order to limit his liability under the lease. Although the landlord cannot utilize a “hyper-technical interpretation” of the Surrender Date requirements, a tenant remains required to follow the conditions specified in the guaranty to surrender the space and thereby end any further personal obligations under the lease.150 Broadway v. Shandell, 27 Misc.3d 1234(A).
If the tenant fails to abide by the terms of the Good Guy Guaranty, he may likely remain obligated for rent that will continue to accrue even after the tenant surrendered the space to the landlord. Broadway 36th Realty, LLC v. London, 29 Misc.3d 1238(A).
In Broadway, the “Surrender Date was defined as follows: “The date that Tenant shall have performed all of the following: (a) vacated and surrendered the demised premises to the Landlord free of all subleases or licensees and in broom clean condition (b) delivered the keys to the doors to the demised premises to Landlord, and (c) paid all sums due and payable under the Lease as Base Annual Rent or Additional Rent or other such charges to Landlord up until the date of (a) and (b) above.
In Broadway, the Court determined that since there were outstanding payments of additional rent due and owing, the tenant failed to comply with the requirements of the Surrender Date and the limitation of liability pursuant to the Good Guy Guaranty would not apply, thus tenant is liable for all rent that will accrue for the remainder of the lease term. Broadway at *5.
In this case, the Good Guy Guaranty provides as follows:
“Guarantor hereby absolutely, unconditionally, and irrevocably personally guarantees to Owner the full and prompt payment of rent due under the Lease payable by Tenant, its successors and assigns and the performance of all of Tenant’s other obligations under the Lease (including, without limitation, Tenant’s obligation to insure that the security deposit held in connection with the Lease shall be equal to the amount as required under the Lease). Notwithstanding the foregoing, if Tenant has performed all of its obligations under the Lease and is not in default AFTER August 1, 2011 (or if Tenant is in default but cures such default before the expiration of the applicable grace, notice and cure period), then the obligations of Guarantor thereafter shall only extend through the period up to and including the Surrender Date.’
The definition of Surrender Date pursuant to the lease is as follows:
“The date upon which Tenant shall have: (a) vacated, and caused all subtenants, assignees, and other parties claiming through or under tenant (other than those that have entered into a written occupancy agreement with Owner) to have vacated the demised premises and surrendered the same in the condition required pursuant to the Lease; (b) delivered all keys to the demised premises to Owner (c) executed and delivered to Owner an agreement pursuant to which Tenant agrees that the lease and any right of tenant to use or occupy the demised premises have terminated; and (d) all of Tenant’s obligations under the Lease shall have been performed including, without limitation, payment of all Rent then due and owing (the date on which all of the foregoing to occur shall be referred to herein as the ‘Surrender Date’).”
The facts in the instant case are as follows: From the execution of the lease on June 30, 2010 through September 30, 2011, tenant paid his rent (August and September rents were paid together on or about October 5, 2011). At that time, correspondence was received by the landlord from the guarantor, who had agreed to pay the rent due and owing provided the late fees were removed from the past balance.
Beginning with October’s rent, no further rent payments were made by the tenant. On April 25, 2012, the Marshal entered the property as part of an eviction and inventoried the premises. The premises were found vacant.
Landlord seeks payment of rent from October 2011 to the present, as it has not yet re-let the space, although the space has been marketed and is listed with a broker.
Based upon the language of the Good Guy Guaranty combined with the case law, the tenant has failed to comply with the terms of the Good Guy Guaranty and Surrender Date and thus the accrual of rent continued throughout the term of the lease (June 30, 2015) for the following reasons:
- Tenant was required to be current with rent AFTER August 1, 2011;
- Guarantor was required to return the keys to the Landlord upon Surrender;
- Guarantor was required to execute an agreement whereby tenant states all rights to the premises have terminated; and
- All rent due and owing has been paid in full.
by Elisa S. Rosenthal, Esq.
Law Office of Richard A. Klass
Copyright 2013 Richard A. Klass, Esq.