“If you want a guarantee, buy a toaster.” ⏤ Clint Eastwood in THE ROOKIE – LawCURRENTS Winter 2024

Acrobat PDF Version

It is very common in commercial leasing that the landlord will insist that the owner of the tenant’s business provide a “Good Guy Guaranty.” This limited guaranty promises the landlord that, in exchange for releasing the business owner from liability for future rent obligations, the tenant promises to provide sufficient notice to the landlord as to when the tenant will be leaving the premises and will leave it in the same condition as it was given with all rent paid up through the surrender date.

Office tenant moved out owing rent arrears

An office tenant of a construction business in a Manhattan office building decided to move out during the COVID-19 pandemic. Upon renting the office, the tenant’s principal signed a good guy guaranty which allowed her to terminate her liability upon surrender of the premises according to its specific terms. [1] The landlord’s attorney retained Richard A. Klass, Esq., Your Court Street Lawyer, to sue the former tenant and guarantor for breach of contract for rent arrears and other charges due and owing.

Guarantor’s Motion to Dismiss Complaint

The individual guarantor filed a motion to dismiss the landlord’s complaint. In opposing the motion, it was urged by the landlord that, based upon the documentary evidence (namely: the lease agreement and the personal guaranty) and relevant statutory and case law, the landlord asserted a valid cause of action against the guarantor and the motion should be denied.

As stated in Sokol v Leader, 74 AD3d 1180, 1180-81 [2d Dept 2010]:  When a party moves to dismiss a complaint pursuant to CPLR 3211(a)(7), the standard is whether the pleading states a cause of action, not whether the proponent of the pleading has a cause of action (see Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17; Foley v. D’Agostino, 21 A.D.2d 60, 64–65, 248 N.Y.S.2d 121). In considering such a motion, the court must “ ‘accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory’ ” (Nonnon v. City of New York, 9 N.Y.3d 825, 827, 842 N.Y.S.2d 756, 874 N.E.2d 720, quoting Leon v. Martinez, 84 N.Y.2d 83, 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511). “Whether a plaintiff can ultimately establish its allegations is not part of the calculus” (EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19, 799 N.Y.S.2d 170, 832 N.E.2d 26).

The terms of the Good Guy Guaranty must be strictly followed

The guarantor claimed that she provided proper notice under the terms of the limited personal guaranty; however, the landlord argued the notice was defective given as of the “Surrender Date,” there remained a substantial amount of rent arrears due and owing. Thus, the guarantor did not satisfy the conditions set forth in the guaranty itself to revoke her personal guaranty. See, 63 N.Y. Jur. 2d Guaranty and Suretyship § 154. “A guaranty is not effectively terminated where the guarantor fails to comply with the termination provisions of the guaranty. Thus, if the guaranty provides that it is to continue until revoked by notice in a specified manner, it may be revoked only by a notice which complies with the contract provision.”

The guarantor further argued that NYC Administrative Code §22-1005 [2] (which allowed those individuals who provided personal guarantees of commercial leases to restaurants and similar retail businesses to cancel them) permitted her to cancel her liability. In response, it was argued that the defendants had the onus to prove that defense somehow applied, given the nature of its business being an office tenant in the construction industry on the 14th floor of the building.