When a guaranty says it lasts “the first seven (7) years,” the natural question is: seven years starting when? A recent Illinois appellate decision answered that question in the guarantor’s favor—and trimmed a six-figure judgment in the process.
The facts are pretty basic. In May 2016, an LLC signed a roughly ten-year commercial lease in an Arlington Heights, Illinois shopping center. The landlord would not proceed without a personal guaranty, so the day after signing the lease, the company’s president signed one in her individual capacity. The guaranty covered “the first seven (7) years of the [l]ease” and recited an effective date of May 26, 2016.
The complication came from the lease’s timeline. Because the landlord had to build out the space, the lease left key dates open—the “Possession Date,” “Commencement Date,” and “Rent Commencement Date” were all described in general terms and pinned down only later, in a 2017 commencement date agreement that set the commencement date as May 20, 2017. So when the tenant fell behind and vacated in 2023, the parties found themselves arguing over a single question worth a great deal of money: did the seven-year guaranty expire in May 2023, seven years after she signed it, or in May 2024, seven years after the lease commenced?
The appellate court’s analysis is a clinic in how Illinois reads guaranties. Looked at on its own, the court said, the guaranty was unambiguous: it ran for “the first seven (7) years” and named an effective date of May 26, 2016, which can only mean it expired on May 26, 2023. Looked at together with the lease documents, an ambiguity appears—because nothing defined what “the first seven years of the lease” meant and the lease’s various date terms did not match the guaranty’s language. But the ambiguity is resolved by two well-settled rules. First, a guaranty generally runs from the date it is executed and delivered. Second, any ambiguity in a guaranty must be construed in favor of the guarantor. Either way, the answer was May 2023.
And then the court kept going and addressed the deferred rent. During the pandemic, the parties had signed an amendment letting the tenant defer more than $70,000 in rent, with a clause allowing the landlord to accelerate the entire balance on default. But the landlord’s own witness admitted he never notified the guarantor that the balance was being accelerated. Combined with the shortened guaranty window, that left the trial court’s lump-sum damages figure on shaky ground, and the appellate court sent it back to be redone.
Practical takeaways
The drafting lessons are universal and cut both ways.
Define when the guaranty clock starts and stops. If a guaranty is supposed to track the lease term, say so explicitly and use the exact defined terms the lease uses. A single sentence tying the guaranty to a specific, dated milestone would have eliminated the entire dispute.
Landlords must remember that guaranties are construed against you. Vague language does not expand a guarantor’s exposure; it shrinks it.
Mind how later amendments interact with a capped guaranty. If you want a time-limited guarantor on the hook for certain obligations, then you have to actually exercise those rights in a timely manner.
Guarantors should keep a calendar. A seven-year guaranty is a seven-year cap on personal exposure, which is generally measured from the day you sign. Know that date, calendar it, and understand that reaffirming the guaranty in a later amendment can extend or enlarge what you owe.
Or to put in fifth grade terms: spell out the start and spell out the end. Don’t be a dummy.
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues. He can be reached at david@seidmanlawgroup.com or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.
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