Daily Development for
Tuesday, June 6, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

LANDLORD/TENANT; GUARANTY: A guaranty of a commercial lease applies only to the obligations incurred by the tenant during the term of the lease, not to obligations incurred by the tenant during a holdover month-to-month tenancy after the lease term expires. Trolley Square Associates v. Nielson, 886 P.2d 61 (Utah App. 1994). Two guarantors executed a guaranty of a commercial lease, which stated that each guarantor "unconditionally guarantees the full performance of each and all of the terms, covenants and conditions of said lease to be kept and performed by said tenant, including the payment of all rentals and other charges to accrue thereunder." The Court held that this language was an agreement to guarantee the obligations under the lease during its term, but did not apply to charges that arise after its expiration. The Court found that this month-to-month holdover tenancy was not a tenancy under the lease even though the lease agreement did have a provision setting the rental rate in the event of a month-to-month holdover tenancy.

Note that the lease also provided that the guarantee remained in effect: ". . . notwithstanding any extension, modification, or alterations of said Lease entered into by and between the parties ... and no extension, modification, alteration or assignment of the above referred to Lease shall in any manner release or discharge the undersigned.... (emphasis added).

The court, citing C.J.S., ruled that this language did not apply to the holdover because it technically was an event occurring after the termination of the lease, even though the lease provided for the rental amount to be applied.

Drafting Tip: The court's interpretation was not one of policy, but strictly a somewhat conservative reading of the guarantee. The parties could have provided that the guaranty applied to holdovers, and undoubtedly that was their intent. Why would they provide that the guaranty covered extensions and renewals and not intend also that it covered holdovers? Notwithstanding the probable intent of the parties, the court requires more written confirmation in order to impose a guarantee. The court is just putting the onus on the landlord's attorney to recognize (and close) all the loopholes. Landlord's lawyers - that's why they pay you the big bucks.

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