Commercial Division Blog

Posted: June 29, 2019 / Categories Commercial, Contracts

Subsequent Agreement Reducing Tenant's Rent Obligations Insufficient to Discharge Guarantor's Obligations Under Initial Contract

On June 18, 2019, the First Department issued a decision in SpringPrince, LLC v. Elie Tahari, Ltd., 2019 NY Slip Op. 04885, holding that a subsequent agreement reducing a tenant's rent obligations was insufficient to discharge a guarantor's obligations under the initial contract, explaining:

Plaintiff's motion for summary judgment in lieu of complaint was properly granted against defendant based on the guaranty in the lease. Here, there is no dispute that defendant guaranteed the payment of the tenant's rent obligations, and that the tenant ceased making rent payments thereunder. Thus, defendant is obligated under the guaranty for the tenant's default under the lease.

Defendant asserts that it is relieved of its obligations as guarantor under the lease based on the fact that subsequent to the signing of the lease and guaranty, the tenant and landlord signed an agreement to reduce the tenant's rent obligations for a period of time, to which defendant alleges it did not consent. However, such assertion is unavailing. Under general contract rules, an obligation may not be altered without the consent of the party who assumed the obligation. Indeed, contracting parties may not alter the surety's undertaking to cover a different obligation without the surety's consent. An obligation is altered when the debtor is discharged from the original contract and a new contract is substituted in its place. The test is whether there is a new contract which will be enforced by the courts" (id.). However, "[i]ndulgence or leniency in enforcing a debt when due is not an alteration of the contract. The Court of Appeals has held that an agreement merely to remit part of the performance due from the principal without changing its character as by lessening the amount of rent to be paid under a guaranteed lease will not discharge the surety.

The subsequent agreement between the tenant and the landlord reducing the tenant's rent obligations did not discharge defendant's obligations under the guaranty as it merely constituted leniency on the part of the landlord and did not create a new contract between the parties.

(Internal quotations and citations omitted).

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