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When Affirmative Defenses Fail, Guarantors May Prevail On the Question of Lease Enforceability
It would seem intuitive, if not axiomatic, to understand third-party guaranties and commercial leases as distinct legal instruments. Although the two are often executed simultaneously, and it is not unusual for a single person to sign a lease in her corporate capacity and a guaranty for that same lease in her personal capacity, each document creates its own set of obligations as between a different set of contracting parties. Indeed, in its recent decision in I Bldg, Inc. v. Hong Mei Cheung (137 A.D.3d 478), the Supreme Court of New York, First Department Appellate Division, wasted few words in distinguishing the two: “Guaranties and leases are separate documents; the former impose obligations on the guarantors and the latter impose obligations on the landlord and the tenant.” The parallel phrasing of this sentence is key to understanding how leases and guarantees work together as related, but separate, sets of obligations.
Leases and Guaranties
In its most basic terms, a lease is the tenant's promise to pay rent, given in exchange for the landlord's promise to provide access to the premises. Beginning with payment of the first month's rent, each party fulfills its promise to the other on an ongoing basis. A guaranty, by contrast, is a contingent promise of payment, given in exchange for a one-time action: The guarantor promises to pay damages that may be caused by the tenant, and in exchange the landlord agrees to enter into a lease with that tenant. A lease requires continual performance by both parties. A guaranty is an IOU, under which the landlord has already done its part, but the guarantor may still owe. These obligations differ in a fundamental way.
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