Commercial Leases, Consideration, Guarantees, Collection of Rent and Signage of Marks!

A recent case by the First District, illustrates the importance of properly drafting and negotiating commercial leases. The Appellate Court, reversed a decision to dismiss a second Amended Complaint filed by LDS (the “Landlord”).  LDS entered into a commercial lease with Southern Cross Food Ltd. (the “Tenant”), but did not include a properly drafted and executed personal guarantee.  Instead, the Landlord had the Tenant’s owner execute a personal guarantee at a later point in time.

Unfortunately, it was not clear that there was adequate consideration for the personal guarantee.  Thus, the Tenant was able to get the Landlord’s claim for rent in the amount of approximately $94,000 dismissed pursuant to a section 2-615 motion to dismiss the verified complaint.  Although the Landlord was able to rent the premises to a Dunkin Donuts franchise, it was not able to collect rental payments from the Tenant and enforce the guarantee against the Tenant’s owners.

On appeal, the First District, allowed the Landlord to file a third amended complaint to establish that there was consideration for the enforcement of the personal guarantee.  The Landlord attempted to claim that its agreement to permit signage for the Tenant should be sufficient consideration for the complaint. Although the Landlord, was able to get a third attempt to make a claim for enforcing the personal guarantee against the Tenant’s owners, there still is no guarantee that it will be able to collect any of the $94,000 of rent owed by the Tenant.

Many of these challenges and obstacles could have been avoided by properly drafting and negotiating the commercial lease and personal guaranty.  Having a Business Lawyer that understands litigation and transactional work can often help a business owner anticipate and mitigate these types of enforcement risks.  If you have any concerns or questions, regarding drafting, negotiating or enforcing a commercial lease or guarantee, then please feel free to contact us.

See: LDS v. Southern Food Case for more details.

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