Landlord & Tenant

Modifications to Lease Did Not Release Guarantor

4 USS LLC v. DSW MS LLC

NYLJ 9/15/14, p. 22, col. 4

AppDiv, First Dept.

(memorandum opinion)

In successor landlord's action against tenant's guarantor for breach of contract, landlord appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division reversed and granted landlord's motion, holding that modifications to the lease did not release guarantor from its contract obligations.

Landlord's predecessor leased premises on Union Square South to Filene's Basement. Guarantor executed a guarantor of Filene's leasehold obligations. By its terms the guaranty provided that the guarantor's obligations would not be affected by a lease modification or by any bankruptcy of the tenant. The only qualification was that a modification or a bankruptcy would not operate to increase the guarantor's liability. In fact, Filene's and its affiliates, including Filene's Basement, filed a Chapter 11 bankruptcy petition, and the bankruptcy court ordered Filene's to assign the lease to SYL, which entered into a lease modification agreement with landlord. Subsequently, SYL defaulted on the lease and itself entered into bankruptcy proceedings. Current landlord then sued guarantor on the guarantee. Supreme Court denied landlord's summary judgment motion, and landlord appealed.

In reversing and awarding summary judgment to landlord, the Appellate Division rejected guarantor's argument that the lease modification was such a material and unexpected departure from the terms of the original lease that the modification abrogated the guarantee. The court emphasized that landlord was not seeking recovery of any of SYL's obligations under the modification. Instead, guarantor's obligations had already been triggered by Filene's default under the original lease, and landlord conceded that guarantor's obligations were capped at the amount of the original lease. As a result, landlord was entitled to summary judgment on the breach of contract issue, with a referee to determine landlord's damages.

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Modifications to Lease Did Not Release Guarantor

4 USS LLC v. DSW MS LLC

NYLJ 9/15/14, p. 22, col. 4

AppDiv, First Dept.

(memorandum opinion)

In successor landlord's action against tenant's guarantor for breach of contract, landlord appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division reversed and granted landlord's motion, holding that modifications to the lease did not release guarantor from its contract obligations.

Landlord's predecessor leased premises on Union Square South to Filene's Basement. Guarantor executed a guarantor of Filene's leasehold obligations. By its terms the guaranty provided that the guarantor's obligations would not be affected by a lease modification or by any bankruptcy of the tenant. The only qualification was that a modification or a bankruptcy would not operate to increase the guarantor's liability. In fact, Filene's and its affiliates, including Filene's Basement, filed a Chapter 11 bankruptcy petition, and the bankruptcy court ordered Filene's to assign the lease to SYL, which entered into a lease modification agreement with landlord. Subsequently, SYL defaulted on the lease and itself entered into bankruptcy proceedings. Current landlord then sued guarantor on the guarantee. Supreme Court denied landlord's summary judgment motion, and landlord appealed.

In reversing and awarding summary judgment to landlord, the Appellate Division rejected guarantor's argument that the lease modification was such a material and unexpected departure from the terms of the original lease that the modification abrogated the guarantee. The court emphasized that landlord was not seeking recovery of any of SYL's obligations under the modification. Instead, guarantor's obligations had already been triggered by Filene's default under the original lease, and landlord conceded that guarantor's obligations were capped at the amount of the original lease. As a result, landlord was entitled to summary judgment on the breach of contract issue, with a referee to determine landlord's damages.

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