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2 Palisades Associates v. Roth

A-4507-97T2 (N.J. Super. App. Div. 1999) (Unpublished)

LEASES; GUARANTIES—A continuing, direct, absolute, and unconditional lease guaranty that expressly applies despite modification to the lease will be upheld unless the modification is such that the resulting lease essentially becomes a new lease.

A landlord sued a guarantor for unpaid rent under a commercial lease. Aside from a limitation as to amount, the lease guarantee was otherwise unconditional, unqualified, and unequivocal. It defined the term “lease” to include “any and all amendments thereto, ... , modifications thereof. ” and liability was agreed to be “continuing” and “direct, absolute and unconditional.” It stated: “[n]either this Guarantee, the enforceability thereof nor the liability of the undersigned hereunder shall be diminished, excused or otherwise affected by any modification or revision of the Lease or any of its provisions, ... and the undersigned waives notices of each of the foregoing.” When the guarantee was executed, there was only one lease which defined the “demised premises” as the ground floor premises in a particular building. A year after the lease was signed, the tenant entered into a second lease with the same landlord. With respect to this second lease, guarantor did not sign a separate guarantee. The tenant and landlord also executed a lease amendment to the original lease. That amendment reduced the rent, but gave the tenant some obligations with respect to second floor space in the “building of which the demised premises are a part.” Although the amendment seemed separate from the new lease, the lower court raised a question as to whether reference in the amendment to the “demised premises” becoming “the entire property” upon acceptance of the second floor space meant that the old lease, as amended, together with the new lease, actually constituted a completely new lease. Adding to this confusion was a statement within the lease amendment referring to an agreement “to coordinate the Original Lease ... with the Adjoining Lease ... and otherwise amend the Original Lease to reflect the revised business development plans of the Tenant.” The amendment also contained a cross-default provision. Ultimately, the tenant went out of business leaving four months of rent unpaid on the original premises. The landlord made a claim for that rent only and made no separate claim for the premises covered under the new lease. As a defense to the guarantee obligation, the guarantor argued that the lease modification created a substitute contract or imposed risks fundamentally different from those that had been guaranteed. The Court upheld the guarantee, finding that it contained clear language that it was unqualified, unequivocal, and unconditional. Such guarantees have been upheld in the face of an alteration, revision or modification of underlying obligations in a variety of commercial settings. Even though guaranties are construed in favor of the guarantor, it is equally well-settled that “a guarantee is a contract and must be interpreted according to its clear terms so as to effect the objective expectations of the parties.” Consequently, a finding that the original lease remained in effect, would require a holding in favor of the landlord. Here, however, the Court found enough indicia in the simultaneous amendment to the old lease and the execution of the new lease to raise a viable factual issue as to whether “the demised premises” which became the “entire property,” was the entire property covered by both leases combined. If that was the case, then the lease amendment, effectively created an entirely new lease to which the guaranty would not apply as it would have been a substitution of an entirely different lease. The matter was remanded to the lower court for trial.


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