Personal Guarantor Liability in Commercial Lease Renewal
Personal Guarantors’ Continuing Liability in a Commercial Lease Renewal
In a commercial lease where there are personal guarantors, do the guarantors need to sign a new guaranty when the lease is extended or renewed absent a provision in the guaranty otherwise?
Please note that, while this article accurately describes applicable law on the subject covered at the time of its writing, the law continues to develop with the passage of time. Accordingly, before relying upon this article, care should be taken to verify that the law described herein has not changed.
In Arizona, a contract of guarantee will be strictly construed in all ways that limit the potential liability of the guarantor. Consolidated Roofing & Supply Co. v. Grimm, 140 Ariz. 452, 452 (Ariz. Ct. App. 1984). It is essentially a completely separate agreement between the guarantor and lessor; thus, while lessors and lessees are free to make any agreement between them, they cannot expand a guarantor’s obligations in relation to his/her performance of the lease. Westcor Co. Ltd. Partnership v. Pickering, 164 Ariz. 521, 525 (Ariz. Ct. App. 1990). In Westcor, an Arizona court held that a personal guarantor was not bound by a subsequent lease renewal when the original guaranty was restricted to the performance of the terms of the lease and the lease did not have any language showing that it was of a continuing nature with respect to any successive terms. Id.
For a guarantee of the performance of a written lease for a specified term to continue into a successive term, Arizona law requires that the “express terms” of the lease show that it is of a continuing nature. Id.
at 524. The Arizona courts have further held that when a lease term ends and a month-to-month holdover commences, even if the personal guaranty covers the renewal, the subsequent renewal does not recreate any obligations on the part of the guarantor, because the renewal is in fact a new lease contract, not a renewal; thus, the guarantor does not guarantee any part of the tenant’s performance in the new lease. Id.
at 525.
Additionally, in Indian Village Shopping Ctr. Inv. Co. v. Kroger Co., 175 Ariz. 122, 122 (Ariz. Ct. App. 1993), the same Arizona court referenced above, addressed a personal guarantor’s liability when a lease modification is made without the guarantor’s consent. The court, in an issue of first impression, applied the law of the Restatement of Security (1941), “which impliedly states that the surety is not discharged when it consents to modification of the underlying contract but adds that the surety may be discharged when the contract is modified without the surety’s consent.” Horizon Resources Bethany v. Cutco Indus., 180 Ariz. 72, 76 (Ariz. Ct. App. 1994).