A Guarantee Of Payment Must Be In Writing

By: Jonathan Mehl, Esq.

It is important to have a guarantee of rental payments in writing.  This can be incorporated into the lease.  However, if the tenant is a business entity such as a corporation, and an individual is guaranteeing rent, there are additional precautions.  The signature line on the lease should have the name of the company above the line, and below the line the name of the person signing and the person’s position should also be written.  There should be a separate line on the lease for the individual to sign that he or she is guaranteeing payment of all sums due in the lease.  A separate guarantee should also be signed by the individual.  The guarantee must be clear that it survives the end of the term of the lease, and an early termination of the lease.

The New Jersey courts recently affirmed this principal in the Appellate Division case of Herz v. 141 Bloomfield Avenue Corporation, decided June 1, 2015.  The Herz Court specifically stated:  “A corporation is an entity separate and distinct from its principals . . . . The general rule is that an officer cannot be held personally liable for the conduct of a corporation.”

The body of the lease contained a clause referring to the “owner and principal” of the tenant. This same provision specifically named the principal and stated that he would “be personally liable for all obligations, rents (past and future) and damages . . . due in connection with said Lease.”  The landlord argued that his clause bound the individual. According to the landlord, there was a clerical error in the lease in that it failed to include a separate signature line for the individual.  The Court disagreed since the individual in order to be bound must sign a separate acknowledgment in order to personally guarantee payment.

In the Herz case, it was undisputed that the tenant had not paid rent for several months.  To complicate matters, there were allegations by the tenant about a defective furnace, pipes bursting, the landlord’s failure to pay water bills, and the landlord’s failure to maintain a septic tank on an adjoining lot resulting in the health department shutting down the business. The landlord made a claim on its insurance policy based upon the tenant’s claims of property damage and loss of profits.  The case against the insurance company was dismissed because the property damages were not covered under the CGL policy.  The policy only covered claims for property belonging to others.  Therefore, the consequential damages of lost profits flowing from the property damages similarly were not covered claims.

Another lesson from the Herz case is that eases should include a provision that the tenant must have its own insurance for its own contents and property.

Jonathan R, Mehl, Esq. is recognized in the community as an ethical and highly skilled attorney, who is dedicated in effectively getting to the bottom line in achieving the client’s goals. Jonathan R. Mehl graduated Seton Hall University School of Law, Newark, New Jersey, in 1991. He earned his undergraduate degree from The George Washington University, Washington, D.C., in 1987. Jonathan R. Mehl is admitted to practice law in New Jersey, New York, and the District of Columbia. He has served on a New Jersey District Legal Ethics Committee, and the New Jersey Supreme Court Rules Committee for the Special Civil Part.Since 1996 Jonathan R. Mehl, P.C. has maintained the law firm in Rutherford, New Jersey. He can be reached at (201) 804-0040 or via email at Jonathan@mehllegal.com.