Pierce & Mandell, P.C.

11 Beacon Street, Suite 800
Boston, Massachusetts 02108-3002

Phone: (617) 720-2444
Fax: (617) 720-3693

Pierce and Mandell PC Blog

RSS Grab PAM RSS

Commercial Lease Guarantee Survives Tenant Settlement

Friday, March 16, 2018

By: Michael C. Fee

The Appeals Court’s recent decision in Cedar-Fieldstone Marketplace, LP v. T.S. Fitness, Inc., 17-P-791, 2018 Mass. App. LEXIS 30, serves as a stark reminder to commercial tenants and their counsel of potential guarantor liabilities that live on even after settlement of an underlying lease debt.

The facts in Cedar-Fieldstone are familiar and common. The defendant tenant, a corporation, rented commercial property from the plaintiff landlord in New Bedford. The tenant’s president executed a detailed, three-page personal guaranty. The guaranty provided that the president’s liability was “co-extensive” with the tenant corporation, and was capped at a specific amount. The guaranty also recited:

[T]he liability of [guarantor] hereunder shall in no way be affected, modified or diminished by reason of . . . any consent, release [,] indulgence or other action, inaction or omission under or in respect of the [l]ease, or . . . any dealings or transactions or matter or thing occurring between [the l]andlord and [the t]enant.

Finally, the guaranty drew a bright line between the landlord’s relationship with the tenant and the tenant’s guarantor, noting that “[a]ll of [the l]andlord’s rights and remedies under the [l]ease and under this [g]uaranty, now or hereafter existing at law or in equity or by statute or otherwise, are intended to be distinct, separate and cumulative and no exercise or partial exercise of any such right or remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any of the others.”

When the tenant defaulted under the lease the landlord brought a summary process action to recover the premises and money damages. The summary process action was resolved by the parties entering into an agreement for judgment, which the tenant president/guarantor signed in his corporate capacity. Thereafter, the landlord brought a separate action against the president, in his capacity as guarantor, to recover amounts left unsatisfied by the tenant. A superior court judge granted summary judgment for the landlord. The guarantor appealed and the Appeals Court affirmed. On appeal, the guarantor argued that once the tenant no longer was liable under the lease, he automatically was relieved of his guaranty obligations as a matter of law. He based that contention on the “black letter legal principle that a guarantor’s obligations are coextensive with those of the principal obligor.” The Appeals Court was unpersuaded.

The Appeals Court first addressed cases standing for the broad principle that “the liability of the guarantor cannot exceed the liability of the debtor.” 275 Washington St. Corp. v. Hudson River Intl., LLC, 465 Mass. 16, 30 (2013). However, on these specific facts, the Appeals Court found that such proposition establishes only that “a guarantor’s own liability is bounded by the scope of the underlying liability that he has guaranteed,” or, stated another way, the guarantor’s liability under the guaranty could not exceed the tenant’s payment obligations that arose under the terms of the lease.

The Appeals Court then applied an entirely different lens to the question of whether a subsequently negotiated compromise of such underlying lease liability affected the president’s obligations as guarantor, and held:

We consider it self-evident that parties negotiating the terms of a guaranty would be free to agree that a subsequent release of a principal obligor’s underlying debt would result in a discharge of the guarantor’s own obligations. But we see nothing in the case law or elsewhere that requires such a term as a matter of law.” Put differently, we see no legal bar to a guarantor’s agreeing – as part of the negotiated terms of a guaranty – that his obligation to fund the underlying debt would survive a settlement of that debt between the principal obligor and the recipient of the guaranty. Rather, what the parties to a guaranty agree to in this regard is simply a matter of contractual intent. After all, “[a] guaranty is a contract ‘like all other contracts.’” Federal Financial Co. v. Savage, 431 Mass. 834, 817 (2000), quoting from Merchants Natl. Bank v. Stone, 296 Mass. 243, 250 (1936). Accordingly, “[t]he liability of a guarantor is to be ascertained by which the obligation is expressed, construed according to the usual rules of interpretation.” Agricultural Natl. Bank of Pittsfield v. Brennan, 295 Mass. 325, 327 (1936).

The ruling may come as a surprise to some, and offers a cautionary tale for tenants, guarantors, and those who draft and negotiate their documents. First, in many instances, the boiler plate terms of a personal guaranty are barely negotiated. Lawyers often assume that when a landlord requires a guaranty as a condition of entering into a lease there can be little discussion about terms. If the tenant defaults, the guarantor is liable. End of story. Careful attention should be paid, however, to the type of broad and all-encompassing guaranty language that the Appeals Court found so compelling in Cedar-Fieldstone. Guarantor’s counsel should at least attempt to carve out a limitation such that if an agreement of compromise is struck between landlord and tenant, the guarantor’s liability may be extinguished as well.

Second, provisions in an agreement for judgment in a summary process case, must, if possible, specifically address and include the guarantor. The Court in Cedar-Fieldstone remarked that the prefatory “Whereas” clauses contained language that could suggest the agreement for judgment was intended to resolve the entire dispute between the parties:

“WHEREAS, by this Agreement, the [landlord] and [the tenant] desire to settle the [District Court summary process action] and any and all of the disputes, if any, arising out of [that action];

“WHEREAS, by this Agreement, the [landlord] and [the tenant] also desire to settle any and all of the disputes, if any, arising out of the [l]ease, whether or not such disputes could have been raised by the [tenant] within this court proceeding;

“WHEREAS, the [landlord] and [the tenant] have agreed that it is in their mutual interest to resolve fully and finally all of the disputes which were, have been, or could have been raised in connection with the [summary process action] and/or [the l]ease, whether or not such disputes could have been raised by the [tenant] within this court proceeding.”

Ultimately, however, such general language was insufficient to overcome the clear, unambiguous, and all-encompassing provisions of the guaranty. Thus, both the trial court and Appeals Court correctly construed the agreement for judgment as a final resolution of disputes between the landlord and tenant, but not between the landlord and the guarantor.

Drafters and litigators beware: at least when a personal guaranty is involved, sometimes a final settlement agreement can be anything but the end of the story.

Michael Fee is a shareholder at Pierce and Mandell, P.C. and former chairman of both the Boston and Massachusetts Bar Association’s Real Estate Sections. The firm frequently represents both landlords and tenants in commercial and residential lease negotiations and litigation matters.

Pierce & Mandell Partners Recognized as Super Lawyers - Boston, MA

Wednesday, May 24, 2017

Pierce & Mandell, P.C. is proud to announce that partners Bob Pierce, Bill Mandell, Thomas E. Kenney, Michael Fee, Bob Kirby and Dennis Lindgren have been selected for inclusion in the 2017 Massachusetts Super Lawyers.

Bob Pierce was recognized as a Super Lawyer in the practice of Civil Litigation Defense, Bill Mandell in Health Care Law, Dennis Lindgren in Personal Injury General: Plaintiff and Tom Kenney, Michael Fee and Bob Kirby in Business Litigation.

Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process is multi-phased and includes independent research, peer nominations, and peer evaluations. Rising Stars are those attorneys under the age of 40 who have been nominated by peers for excellence in their chosen practice area. Candidates are then evaluated utilizing twelve indicators of peer recognition and professional achievement. No more than 3 percent of eligible lawyers in Massachusetts are named to the Rising Star list each year.

The Super Lawyers supplement will be published in the November, 2017 issue of Boston Magazine and is widely distributed in regional publications and across the country.

For information or assistance from Pierce & Mandell, P.C., contact us.

Michael C. Fee Helps Boston Bar Association's Zoning Reform Bill Become Law

Friday, August 12, 2016

Pierce & Mandell, P.C. partner, Michael C. Fee, a member of the Council of the Boston Bar Association, recently participated in the BBA's efforts to pass a zoning reform measure that the organization has championed since 1995.  House Bill 3611 was signed into law by Governor Baker on August 5, 2016 and provides much needed clarification to the Massachusetts Zoning Act, G.L. c. 40A, § 7.

Most do not realize that the Massachusetts zoning statute was first enacted into law in the 1920's. While it underwent significant overhaul in both the Fifties and Seventies, in many ways it remains today an historical anachronism, full of dense language and land use principles perhaps better suited to less complicated times.  Every legislative session in recent memory has seen efforts to promote comprehensive zoning reform, however, there is rarely consensus among the most highly interested stakeholders. Neither, developers, builders, housing advocates or municipalities appear able to agree on what is right, and what is wrong with G.L. c. 40A.

Consequently, the more effective approach, and the one pursued by the BBA in this instance, is to propose legislation that tackles the most glaring ambiguities in the zoning statute, section by section. House Bill 3611 amends G.L. c. 40A, § 7, which requires municipalities to bring enforcement actions against non-compliant structures or uses no later than ten years after the inception of such structure or use. The problem with the old provision was that it was silent as to the legal status of those structures which survived the applicable statute of limitations. One would think that such structures would automatically become pre-existing, non-conformities, subject to the grandfather rights explicitly detailed in G.L. c. 40A, § 6. However, G.L. c. 40A, § 7 omitted any such explicit reference, and left non-compliant structures that had survived the statutory limitations period in a kind of legal limbo.

The issue came to the forefront recently, as several appeals court panels issued inconsistent rulings regarding the status of such surviving structures. The newly enacted legislation cures the section's ambiguity by granting these structures recognized legal status as a preexisting non-conformities protected under G.L. c. 40A, § 6. The change will provide greater clarify to owners, buyers and lenders that participate in transactions involving these types of property rights. To read the BBA's press release regarding the recent enactment of H3611, click here.

House and Senate Pass BBA Bill Promoting Development

Monday, May 16, 2016

Michael C. Fee recently assisted the Boston Bar Association’s lobbying efforts in support of House and Senate Bills designed to clarify the scope of General Laws Chapter 40A, § 7, and codify the principle that non-compliant structures and uses that survive applicable statutes of limitations should be granted the status of a pre-existing, non-conforming structure or use, subject to the protections of G.L. c. 40A, § 6.

Michael testified before the Judiciary Committee, worked with Senate Ways and Means Committee staff, and conferred with Senator Keenan in an effort to move the bills forward.

The Senate version, S. 2259, passed last week, and the legislature is currently in the process of reconciling it with a House version (H. 3611) which passed last June. Click here to read the BBA’s press release on these endeavors.

Pierce & Mandell partner Michael C. Fee Appointed to Boston Bar Association Council

Monday, July 27, 2015

Michael C. Fee was recently appointed to a four-year term, commencing in September, as a member of the Council of the Boston Bar Association (BBA).  The BBA is one of the oldest bar associations in the United States and the hub of the legal profession in Boston.  Its mission is to advance the highest standards of excellence for the legal profession, facilitate access to justice, and serve the community at large. Headquartered at 16 Beacon Street in the historic Chester Harding House, the BBA has more than 12,000 members drawn from private practice, corporations, government agencies, legal aid organizations, the courts, and law schools. The 34 member Council, headed by incoming President Lisa Arrowood, governs the activities of the BBA and its more than 100 sections and committees, dedicated to the study of substantive areas of law, improving the delivery of legal services, and promoting diversity and inclusion in both the profession and our courts.


Enter your e-mail address below to receive updates on new blog posts!


Recent Posts


Archive


Tags