More often than not, a commercial landlord will ask for a personal guaranty from a prospective tenant when negotiating a lease. A personal guaranty gives the landlord the ability to seek from the guarantor any unpaid rent in addition to the business entity that is renting the space. Many times, the guarantor is the owner of the commercial entity seeking to lease the commercial space and is providing a personal guaranty in his/her individual capacity.
Extensions and Renewals
At the end of the original lease term, the tenant may or may not have a unilateral option to extend the lease term. If the tenant does not have an option to extend the lease term, then the parties may agree to extend the lease term.
At this point, should the landlord ask for another personal guaranty or does the original guaranty carry over into the new lease term? The answer is it depends. If the personal guaranty signed with the original lease contained a continuing guaranty, then the original guaranty would carry over to future amendments.
Under Florida law, a guaranty for a lease can be continuing, but must expressly state that it is intended to cover future transaction for the guarantor to be liable for extensions and renewals. See Sheth v. C.C. Altamonte Joint Venture, 976 So.2d 85 (Fla. 5th DCA 2008). If you are a commercial landlord and your lease does not expressly state that the guaranty is intended to cover future transactions, then the personal guaranty would only cover the original lease term and any options provided by the original lease. In the event the tenant defaults, failure to recognize this risk can have significant consequences for the landlord.
In Haggin v. Allstate Investments, Inc., the Fourth District Court of Appeals (the “4th DCA”) overturned a $291,802.00 judgment in favor of the commercial landlord because the personal guaranty did not expressly provide for future transactions. In Haggin, the lease was extended and modified numerous times and the guarantor did not sign any of the modifications to the original lease. Ultimately, the tenant defaulted and the landlord sought money damages from the tenant and the guarantor. Initially, the trial court ruled in favor of the landlord, but the guarantor appealed the judgment, and the 4th DCA overturned the ruling in favor of the guarantor.
Commercial leases and personal guarantees can be complicated and we are here to help. Please feel to contact me at email@example.com or by phone at 239-344-1125.