Good Guy Guaranty Negotiation-Commercial Real Estate Lawyer

A negotiation regarding a “good guy guaranty” pertains to a limited personal guarantee commonly utilized in commercial leases within New York City. This arrangement is documented as a clause within the lease agreement or as a separate document. Typically, the good guy clause is endorsed by the tenant’s principal, who commits to fulfilling all obligations outlined in the lease. In return, the landlord grants the corporate tenant the option to terminate the lease prematurely, subject to specific conditions, such as the payment of all outstanding rent up to the date of surrender. Additionally, the good guy clause necessitates that the tenant provides adequate notice of termination (typically 90 days) and vacates the premises entirely, leaving it in a “broom-clean” condition. Upon the surrender of the premises, the landlord releases the guarantor from all obligations stipulated in the lease.

Pros and Cons

Robust good guy guaranty negotiation benefits both parties, namely the tenant and the landlord. This arrangement affords a tenant’s principal the opportunity to absolve themselves of lease obligations in the event of business failure. From the landlord’s perspective, the good guy guaranty offers protection, as it cannot be exercised in the event of tenant default, thus ensuring the guarantor remains personally liable for rent throughout any lengthy eviction proceedings. Furthermore, the tenant is incentivized to surrender the premises early if the business proves unprofitable. While the tenant’s principal may seek to evade personal liability, the inclusion of a good guy clause limits potential exposure if the landlord demands a personal guarantee. Typically, this also results in landlords requiring a reduced security deposit. It is common for landlords to mandate personal guarantees, particularly when leasing to startup companies lacking substantial assets.

During negotiations for a good guy guaranty, the tenant must avoid defaulting, including non-payment of rent, when issuing notice to the landlord. Therefore, it is advisable for tenants to seek the shortest notice period possible. Occasionally, landlords may negotiate terms restricting the tenant’s ability to exercise a good guy guaranty during the initial years of the lease term. Another pivotal negotiation point pertains to the tenant’s responsibility to restore the premises, removing any alterations made upon surrender.

The tenant forfeits their security deposit upon exercising the good guy guaranty. The landlord may argue that this forfeiture is justified, as the tenant technically defaults on the lease. Notably, only the principals of the tenant entity are released from their obligations.

Tenants must demand a good guy guaranty. However, it is essential to note that not all clauses labeled as such offer the intended protections. Many such clauses contain numerous conditions that render them akin to complete personal guaranties. Tenants should engage an experienced attorney to navigate good guy guaranty negotiation, as this clause holds significant importance in the event of business failure.

To arrange a consultation, please get in touch with us at 212-619-1500.