Lease guaranty’s demand requirement trips up landlord

All too often commercial parties sign contracts without paying much attention to the “boilerplate” provisions.  And all too often that causes a problem for one of the parties.  Such was the case for an Orlando landlord that didn’t pay enough attention to the demand requirement in a lease guaranty.  The result in Nabbie v. Orlando Outlet Owner, LLC, a new decision from Florida’s Fifth District Court of Appeal, should serve as a “heads up” for Florida commercial landlords.

The facts are simple.  The lease guaranty at issue stated in “Paragraph A” that upon the tenant’s default, the guarantor “shall on demand of Landlord fully and promptly pay all Rental and other sums, costs, and charges to be paid by Tenant…”  A separate provision in the guaranty, “Paragraph B,” stated: “The Guarantor unconditionally waives…presentment, demand for payment of any sum from the Tenant or any person who has guaranteed in whole or in part any of the obligations guaranteed hereby…”

The tenant defaulted under the lease and the landlord sued the guarantor.  The guarantor raised a defense that the landlord never made a demand on the guarantor before suing.  The landlord argued that Paragraph B meant that the landlord did not have to make a demand on the guarantor.  The trial court ruled for the landlord on that argument.  The case went to trial and the guarantor lost.

But on appeal, the guarantor won.  The appellate court ruled that the landlord was unable to offer any meaning for Paragraph A if Paragraph B meant that the landlord did not have to make a demand before suing the guarantor.  Instead, the appellate court found that Paragraph B meant that the landlord did not have to first demand payment from others (such as the tenant and other guarantors).

The landlord argued that the guarantor fell into the group referenced in Paragraph B.  The appellate court rejected that argument because the defined term “Guarantor” was not mentioned in Paragraph B and throughout the agreement the parties used that defined term to refer to the guarantor.  The court also found that the context of Paragraph B made the landlord’s interpretation unreasonable.

Ultimately, the decision was based on the exact language of the guaranty.  The case does not mean that a landlord must always make a pre-suit demand on a guarantor – just when the guaranty requires it.  What the case really means is that the parties must be careful about their drafting (a lesson we’ve covered on this blog over and over and over) and read their agreements once executed.

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