Tenant’s Pandemic Related Exercise of “Good Guy“ Guarantee

This was originally published on the SGR Blog.

Confronts Dispute With Landlord Over Amount Due

Commercial leases are often signed with a concomitant “good guy” guarantee, in which a principal of the tenant guarantees the payment of the financial obligations under the lease. And the guarantor can be released from such liability if both a timely notice to terminate the lease is given, and rent and additional rent are paid in full until the date of surrender. But what if the landlord and tenant disagree about the amount due to perfect the termination and release?

Monica King Contemporary LLC, a corporate tenant, and Monica King, individually, as “good guy” guarantor, sought injunctive relief from a lease with Kedskidz Realty II for the ground floor and basement space used for an art gallery and office at 39 Lispenard Street.

King asserted that, because of the ongoing pandemic, she invoked the provision of the lease that permitted her to terminate the lease and guaranty and surrender the premises with six months’ notice. King explained that she had paid all amounts she believed were due under the lease in order to meet her obligations under the “good guy” guaranty.

King acknowledged a dispute with Realty over exactly how much was due in base rent and with respect to the brokerage commission. And so King sought a stay of the time to pay any additional amounts that might be owed to Realty so that King could still invoke the “good guy” guaranty. In other words, King sought a determination of the parties’ rights so that she could satisfy the guarantee without racking up additional money owed while the dispute was resolved. She simply wanted to stop the bleeding until the Court determined how much, if anything, was owed.

Realty did not submit an affidavit from the landlord and did not challenge a single fact asserted by King. Although the attorneys pointed out that they were just retained, they could submit an affirmation in opposition and a detailed memorandum of law. And the Court found that they could have submitted a short affidavit from the landlord challenging King’s version of the facts and asserting that more money was due. Instead, the attorneys argued that the dispute was about the amount of money owed to Realty–and King was not entitled to a preliminary injunction. They claimed that the complaint only sought monetary damages and a declaratory judgment about the amounts in dispute.

In reply, King asserted that the case was not only about monetary damages and pointed to the first cause of action for declaratory judgment.

A preliminary injunction substantially limits a defendant’s rights and is thus an extraordinary provisional remedy requiring a special showing. Accordingly, a preliminary injunction will only be granted when the party seeking such relief demonstrates a likelihood of ultimate success on the merits, irreparable injury if the preliminary injunction is withheld, and a balance of equities tipping in favor of the moving party.

The Court granted the injunction. In the moving papers, King explained that she had paid all sums due under the lease but, because of the ongoing pandemic, she planned on vacating the premises in January 2021 pursuant to a notice to vacate and surrender the premises. Her reply updated the facts that she had, indeed, vacated and surrendered on January 10th. She contended that there was a dispute over how much had to be paid in order for her to invoke the terms of the “good guy” guaranty (and thereby absolve herself of any further obligations under the lease). But King could not pay all amounts due up to the date of surrender and satisfy the terms of the guarantee if the parties could not agree on exactly what was due. Because the parties were unable to agree, Kings brought suit to stop the clock and avoid the accrual of rent.

King had a sufficient basis for a preliminary injunction—so that the financial bleeding could stop as of the date of surrender, and the parties could make their case about how much, if anything, was due. The balancing of the equities also tipped in her favor. King claimed she just wanted the opportunity to pay what was owed up until the premises were surrendered, and Realty was entitled to every penny of that from her but no more. To allow Realty to refuse the surrender could potentially increase the King’s obligation each month while the dispute dragged on. And, without a preliminary injunction, King might not be able to utilize the “good guy” guaranty at all. That was irreparable harm.

Realty was correct that a preliminary injunction should not be issued where monetary damages could compensate the harm. But King’s first cause of action sought declaratory relief and not just monetary damages.

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