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Montpen SC, L.L.C. v. Mathews Art, Inc.

A-5036-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

LEASES; GUARANTIES — If a lease guaranty clearly and unambiguously covers only the initial term of the lease, extensions, and renewals of the lease, the guarantor will not be liable for rent owed on account of any holdover period.

A landlord owned a commercial building occupied by a sole tenant who had, by assignment, assumed a prior tenant’s three-year lease with the landlord’s predecessor in interest. The prior tenant had exercised an additional three year option. The lease was then extended for two successive one-year periods. It was during this time that the latest landlord, a wholly owned subsidiary of the prior one, assumed its interest in the lease. In connection with the assignment of lease to the tenant, an additional four year option followed by another five-year renewal option was added, all subject to rent increases.

As part of these arrangements, the tenant’s principal signed a personal guaranty covering up to one year of rent for any default during the initial term of the assigned lease or during any extensions or renewals. The tenant did not execute its extension options, yet remained in the building after the lease expired. It continued to make rent payments until it stopped. Facing eviction, it vacated the premises one year later with substantial rent remaining unpaid.

The landlord sued the tenant and the guarantor for unpaid rent and other damages. The lower court granted summary judgment in favor of the guarantor, concluding the personal guaranty did not cover the unpaid rent. It ruled that the tenancy had become a month-to-month tenancy when there had been no extension or renewal, and the guaranty only applied to extension or renewal periods. The lower court granted partial summary judgment to the landlord against the corporate tenant, holding it liable for the unpaid rent and other sums due under the lease. However, the tenant filed for bankruptcy protection. The landlord appealed, arguing the principal’s personal guaranty was a substantial inducement for its agreement to permit the tenant to remain.

The Appellate Division affirmed, agreeing that the guaranty could only be triggered upon a default under the expired lease or upon extensions or renewals of that lease. The lease itself specifically provided that a holdover occupancy by the tenant would not constitute a renewal or extension. The Court found these terms were all clear and unambiguous, and had to be enforced as written. It was the landlord’s predecessor in interest who drafted the lease, the ensuing lease extensions, and the guaranty. So, the landlord was bound by the plain meaning of the terms contained within those documents.

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