In the recently decided case, Demetrios Kozonis v. Ciacomo Tamburello (2106 Il. App 1st – December 19, 2016), the First Division of the Appellate Court of Illinois ruled that a personal guaranty to a lease is not enforceable if the lease is later extended where the original guaranty did not include language that it remains enforceable for all lease extensions.
Facts of the Case
Under Kosoniz, the lessor, Parkway Bank and Trust Company rented space to tenant, Euro Cappuccino, with an initial lease term commencing January 2000 and terminating December 2002. The lease provided that if tenant was not in default it had a three year option to extend the term. Accordingly, the lease would terminate at the end of 2005. A separate written personal guaranty by the president of Euro Cappuccino, Giacomo Tamburello, guaranteed the obligations under the lease, but the guaranty did not contain any language that the personal guaranty would cover any extensions of the lease.
The tenant continued to occupy the premises through November of 2005, when the parties entered into an agreement to extend the lease from January 2006 until December of 2010. In February 2010, Euro Cappuccino stopped making full rental payments and landlord filed suit again Mr. Tamburello as guarantor.
The lease extension in the Kozonis case was a one page document setting forth the new rent payment terms and time periods. The only other provision of the lease extension was the following statement: “all other terms and conditions set forth in the Lease except as amended herein shall remain unchanged.”
The Appellate court restated the “general rule” in Illinois that a “guarantor of a lease, absent its consent, cannot be held liable for the obligations of the lessee incurred during any extended term other than the one secured in accordance with the terms of the lease.” Citing T.C.T Building Partnership, v. Tandy Corp.323 Ill. App. 114, 118 (2001). The Appellate court noted that the original lease only provided one extension to the original lease of three years. The Appellate Court found that regardless of its label as a “lease extension”, this was not an extension contemplated by the original lease. Therefore, Mr. Tamburello’s guaranty was not secured to the lease extension.
The Kozonis case emphasized that the issues of the personal guaranty extending beyond the original or extended term of the lease was not contemplated in the original lease at all. As the Appellate Court stated: “The Lease Extension that was in effect from January 1, 2006 through December 31 210 created a new rental obligation….This new obligation was never guaranteed by Mr. Tamburello.”
This is a good cautionary tale for landlords to make sure that in drafting a personal guaranty, the guaranty language expressly covers not only the lease term but all extensions. A simple clause such as “this guaranty covers the initial lease term, and all extensions thereof” should cover this situation and avoid the situation of a guaranty later being found unenforceable. If a landlord’s current personal guaranty does not include such language, then it is critical that for any lease extensions a new personal guaranty be executed by the guarantor.
If you have legal questions regarding a lease and a personal guaranty, please contact Kovitz Shifrin Nesbit at 855-537-0550 or visit www.ksnlaw.com.