What is a “Good Guy Guarantee?”
Updated in March, 2018
So you found the found the right office space for your business, and you’re ready to sign the lease. Great! When you read the fine print on a commercial real estate lease, you may notice the landlord included a clause requesting that you agree to a Good Guy Guarantee. This clause is most commonly found in New York City office space leases.
It’s a legal promise that if for any reason the tenant becomes unable to continue paying rent for the space, he or she will give the landlord proper notification (usually three month’s notice), vacate the premises, and pay all rental fees up until the date of departure.
What is a Good Guy Guarantee? Essentially, it’s a legal promise that if for any reason the tenant becomes unable to continue paying rent for the space, he or she will give the landlord proper notification (usually three month’s notice), vacate the premises, and pay all rental fees up until the date of departure. As long as the tenant leaves the space in great condition, the landlord will not hold him or her legally responsible for the remaining lease payments after the office space is vacated. This contract is a way for landlords to protect themselves without charging additional upfront fees such as a security deposit or additional month’s rent.
So is the Good Guy Guarantee, well, good? Let’s examine two different situations that involve breaking a lease, one with a lease that involved a Good Guy Guarantee and one that did not.
Breaking a Lease that has a Good Guy Guarantee
Imagine that a startup signed a lease including a Good Guy Guarantee to rent office space for two years. Unfortunately, the business fails after 18 months. How could the business owners possibly continue paying the rent for the space? Under the Good Guy Guarantee, they do not have to once they leave. They need to be the “Good Guys” and do the following:
- Notify the landlord that they will no longer be able to pay
- Return the space to its former condition. That means tenants must clean the space; ensure nothing is stained, broken, chipped, or otherwise damaged; remove all personal belongings; and of course, stop working in the space.
Unfortunately the business will no longer have office space, but the tenants will not have to pay the landlord for the months remaining in the lease after they’ve vacated the premises. According to a signed Good Guy Guarantee, the landlord would be free to go after any assets left in the company to recoup rent that was not paid while the business still occupied the space but otherwise would have no legal recourse to go after the tenant’s personal assets.
Breaking a Lease that does NOT have a Good Guy Guarantee
Now imagine that a landlord rents office space to a small business for one year, but yet again, the business fails. They cannot pay rent for the space. Without a Good Guy Guarantee, two potential unpleasant outcomes may occur.
- The tenant may vacate the premises without warning before the lease is up, leaving the landlord without adequate time to fill the space with a new tenant. Then the landlord may take legal action against the tenant personally for failing to pay for the remaining months in the lease.
- The tenant may refuse to vacate the office space despite the inability to pay rent. Even if the landlord takes legal action, the process can take up to a year. During which time, the landlord is losing money by the minute; if the delinquent tenant doesn’t leave, the landlord can’t rent the space to a new, rent-paying tenant either. If the tenants declared bankruptcy, the landlord would have even more trouble getting rid of them. The lengthy, costly legal battle will result in the penniless tenants having to pay through the originally agreed lease or the landlord losing a lot of money.
Not All Good Guy Guarantees are Created Equal
Ideally, the Good Guy Guarantee protects both the landlord and the tenant. 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. Before you sign a lease, here are some clauses you should examine in the agreement:
Good Guy Guarantees and Sub-tenants
How does a Good Guy Guarantee affect your business if you sublet the office space? Well, imagine if you sublet the space to a sub-tenant who fails to vacate the space when the lease ends? Unfortunately, you are still personally liable until the sub-tenant moves out. That’s a big incentive not only to be careful who you choose as a sub-tenant but also to draft effective lease agreements for them.
Good Guy Guarantees and Company Buy-Outs
What if another company purchases your company, thus acquiring the office space in the middle of your lease? In this case, your name is still attached to the Good Guy Guarantee because they’re renting the space during the time for which you signed the lease. If the new occupants participate in any kind of misconduct regarding the space, you are personally liable. Before you sign a lease agreement, make sure this situation is covered fairly.
Multiple Tenants and the Good Guy Guarantee
If more than one tenant will be signing the lease, be sure the agreement includes a clause stating that if one of the business owners withdraws from the business, he or she will no longer be held responsible for the lease agreement. Instead, the signee who remains with the company will take on the lease responsibilities.
Good Guy Guarantee Loopholes
Be aware that landlords may have different definitions of the Good Guy Guarantee, so you should always check the fine print for discrepancies other than the ones mentioned above. For example, the landlord may include a requirement that the space be returned in its original state and insist that means removing any alterations made to the space or paying for restorations and repairs before the next tenant moves in. Or, the landlord might insert a phrase requiring the tenant give 6-12 months of notice before vacating, which effectively negates a Good Guy Guarantee’s benefits for tenants.