Rent it Right
by Janet Portman, Inman News
Q: My aunt and uncle agreed to sign as guarantors when my wife and I signed our lease last year. When the lease ended, we stayed on, paying rent but without signing a new lease. After a few months, the landlord and we crossed out the beginning and ending dates on the old lease, entered new ones, agreed to a slightly higher rent, and signed for another year. Now, we are out of work, and we and the landlord have asked our guarantors to pay a portion of the rent. They refused, saying that they signed up only for one year. But, the guarantee clause says that their promise will remain “in full force and effect,” even if the lease changes. Aren’t they still obligated? –Peter J.
A: You actually signaled the answer to your question by describing the original lease — the one your aunt and uncle signed — as the “old” lease. Guarantors obligate themselves to cover the tenants’ financial responsibilities only as far as the guarantee provides. Some guarantee clauses specify that the obligation will apply to all changes in the original lease, be they extensions, renewals or new leases; others, like yours, say simply that the obligation will survive any changes in the lease.
When you and your wife stayed on after the lease expired with the permission of the landlord (as evidenced by his willing acceptance of your rent checks), you became month-to-month tenants, operating under the same terms and conditions that were in your original lease. At that point, your “lease” was not a lease at all, but a lease-turned-oral monthly rental agreement. Then, you agreed on new starting and ending dates and a higher rent, and signed a new year-long lease.
Even though you used the same pieces of paper that had once been the original lease, that new lease was just that — a new lease, not an extension of the old one. The wording of your guarantee clause arguably doesn’t stretch that far because, according to you, it didn’t specify extensions or renewals, and referenced only “changes” in the existing lease. The existing lease hasn’t changed: It stopped existing when you became month-to-month tenants, as did your guarantors’ obligations.
Your question highlights why guarantors need to read the guarantor clause carefully. The most guarantor-friendly clauses specify that the guarantors’ obligations will not survive any material changes in the lease, such as an assignment of the lease by the tenants. Guarantors who sign clauses like this know from the outset exactly what they’re on the hook for — and for whom: They know the rent, and they know the financial stability of the tenants whom they’re guaranteeing.
Less friendly clauses obligate the guarantors despite changes in the lease terms or tenants, and specify that the guarantor will remain in the picture despite any lease changes, extensions or even renewals. Signing a clause like this requires a large leap of faith (and a solid bank account).
Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of “Every Landlord’s Legal Guide” and “Every Tenant’s Legal Guide.” She can be reached at email@example.com. Copyright 2010 Janet Portman
See Janet Portman’s feature, Asset Protection For Landlords.
American Apartment Owners Association offers discounts on products and services for landlords related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
To subscribe to our blog, click here.