In New York commercial real estate, landlords commonly ask tenants to agree to a “Good Guy Guarantee” clause in the lease.
What is it? Essentially, the good guy guarantee is a one-page document stating that the landlord has the right to take legal action personally against a lease-holder who stops paying rent and refuses to vacate the premises.
You might read this and think “wait, do I want to sign anything stating that a landlord can take me to court?” In practice, the good guy guarantee rarely comes into play, even if you’re unable to meet your rent obligation. In which case, as long as you notify the landlord ASAP, you’re acting in good faith.
But landlords can’t always count on tenants acting in good faith, so when they feel it necessary, they adopt additional means of protection.
The “Good Guy” Scenario in a Good Guy Guarantee
If you rent office space and then, through some unforeseen circumstance, you can’t make rent payments and fulfill the terms of the lease. In that scenario, the “good” course of action would be letting the landlord know. Additionally, you would vacate the space as soon as possible so the landlord could re-market and lease it to a new tenant.
According to a signed Good Guy Guarantee, the landlord would be free to go after after any assets left in your company to recoup lost rent, but otherwise would have no legal recourse to go after the tenant’s personal assets. The tenant, after all, acted in “good” faith and vacated the space.
The Good Guy Guarantees is really for tenants who don’t bother with the aforementioned steps.
The “Bad Guy” in a Bad Guy Guarantee
Eviction might sound like a simple enough solution for a landlord trying to sever ties with an irresponsible tenant, but under New York law, the entire process can take longer than a year. During which time, the landlord is losing money by the minute; if the delinquent tenant won’t leave, the landlord can’t rent the space to a new, rent-paying tenant either. That would make the delinquent tenant a “bad guy.”
Under the Good Guy Guarantee, the landlord could take legal action against the lease-holder personally. An unpleasant scenario, to be sure.
Sublets and Good Guy Guarantees
If you decide to sublet office space to another tenant, and that sub-tenant doesn’t vacate the space when the lease is up, you guess it: you’re still personally liable until the subtenant vacates the space.
Another possibility: if your company is sold to another party that acquires the space during the original lease term, your name is still attached to the Good Guy Guarantee. Which means you’re still personally liable for any misconduct on the part of the new occupants.
Good Guy Guarantees aren’t always required to lease office space. Every lease is different. Your offer amount, credit history, and state of the market can all impact a landlord’s decision to pursue a Good Guy Guarantee or not. But now you’re prepared if they do.