Rent Default Stymies Personal Guaranty Expiration, Put New Jersey Tenant’s President on Hook for $324K in Damages

May 8, 2015

The New Jersey Superior Court, Appellate Division recently upheld a lower court ruling that put a carpet business and its president on the hook for more than $324,000 in rent arrearages and other damages owed to the business’ landlord. The president was liable for the entire arrearage because he signed a personal guaranty that only expired if his business stayed current on its rent.

In 1998, HLP Associates, L.P. leased a space to City Carpet, Inc. Like many landlords, HLP negotiated for a personal guaranty from City Carpet’s president, Zafar Iqbal. Iqbal signed the guaranty, which contained language making the guaranty void after the fifth year of the lease as long as the tenant was not in default.

By 2003, the tenant had fallen substantially behind on its rent, but the parties continued forward until the end of the lease period, even consummating a five-year extension in 2008, although the tenant remained in arrears on its rent the entire time.

The landlord eventually sued the tenant and the tenant’s president in 2012. As part of this action, the landlord sought to enforce the personal guaranty Iqbal signed. Iqbal argued that he was only responsible for the arrearage accumulated through 2003, after which the guaranty expired. The trial court disagreed, instead siding with the landlord. The court concluded that the landlord’s evidence clearly showed that the tenant was behind in rent by 2003, meaning that the tenant was in default and the guaranty remained in effect throughout the entire tenancy.

The Appellate Division upheld this ruling. The appeals court stated that the guaranty the parties signed should be enforced as written because all of its terms were clear. Even if an agreement was “unwise in hindsight,” it is not the courts’ job to “make a ‘more sensible contract than the one’ the parties made for themselves,” especially in situations where both sides are sophisticated commercial entities that were represented by counsel, as was the case in the lease between HLP and City Carpet.

The lease language plainly stated that the guaranty “would continue past the initial five-year term of the lease if, during that period, the lessee was ‘in default of Base Rent, Additional Rent or any other term or condition of the Lease.'” Iqbal’s argument that the landlord was required to send out a written notification of the tenant’s default status failed because the guaranty’s unambiguous language contained nothing in it that mentioned any obligation on the part of the landlord to notify the tenant of its default.

HLP’s success in this case demonstrates the value of a carefully negotiated and meticulously written lease agreement, and the benefit to landlords of thoughtfully crafted personal guaranty provisions. For knowledgeable advice and representation regarding your commercial lease, talk to the real estate attorneys at Samuel C. Berger, P.C. Our New Jersey real estate attorneys can help you put together a lease agreement that meets the needs and interests of your business. Reach us online or call (201) 587-1500 or (212) 380-8117.

Schedule a free, confidential initial consultation today.

More Articles:

Early Termination of New Jersey Commercial Leases and Rent Acceleration Clauses, New York & New Jersey Real Estate Lawyer Blog, Feb. 13, 2015

Landlord Wins on Security Deposit, Loses Rent and Damages Claims in Appellate Division, New York & New Jersey Real Estate Lawyer Blog, Feb. 13, 2015