The Law

The $250,000 Question by Ron Davis The owners of a Georgia shopping center have lost not only a valuable tenant but also $250,000 that the owners believe is part of a guarantee that the tenant would honor the lease. The shopping center is Roswell Festival in suburban Atlanta, and the guarantee became a separate condition of the lease when the center’s owner and the tenant—a pizza restaurant—initially agreed to lease terms. The guarantors were the owner of the restaurant and the restaurant’s corporate franchisor, both of whom promised to accept responsibility for the lease in case of the tenant’s default. The duration of that lease was 60 months, but the guarantees extended to only the 42nd month of that obligation. The tenant then opened for business, and except for consistent late payment of rent, the relationship between the two parties seemed to go well. In fact, despite the spotty payment history, the shopping center’s owners agreed to renew the tenant’s lease after the 60-month period ended. Not until after that renewal and the tenant’s default of the lease did the shopping center’s owners seek retribution from the lease guarantors. The shopping center’s owners pointed out that at the end of the 42nd month of the lease, the tenant had not paid that month’s rent. Therefore, they argued, the tenant had actually defaulted on the lease at that time, and in doing so the guarantors must pay $250,000 to satisfy the obligations under the lease renewal. The guarantors replied that they had satisfied the terms of the lease by paying the rent and penalty fees—although admittedly two weeks late—for the 42nd month. After that, they added, they were no longer obligated. In its decision in favor of the guarantors, a Georgia appellate court explained, “Under the explicit terms of the guarantees, the guarantors’ obligations were to end on the 42nd month of the lease in the event that no default exists. But by the shopping center’s interpretation, if the tenant paid the rent late in the 42nd month, the guarantees would continue indefinitely…. This the law forbids.” (Roswell Festival, LLLP v. Athens Intern., 576 S.E.2d 908 [Ga.App. 2003]) Decision: February 2003 Published: May 2003