As a tenant in search of a new commercial property in New York, you may notice a clause in your office space lease called the Good Guy Guarantee. This term, also known as the Good Guy Clause is often included in commercial real estate contracts and is most commonly found in New York City office space leases.
What is a Good Guy Guarantee?
It’s a legal clause that if for any reason the tenant becomes unable to continue paying rent for the space, that tenant 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.
The Good Guy Clause is an important condition that protects both parties and is a personal guarantee between tenant and landlords. 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. In New York City this contract is a way for landlords to avoid charging the tenant additional upfront fees for a new commercial property such as a security deposit or additional month’s rent.
The Good Guy Clause:
In New York the Good Guy Guarantee can vary from case to case but mostly it is a personal guarantee that releases a tenant of their lease term obligations.The clause provides tenant security for the breaking of an office space lease in the city as long as the tenant upholds these actions:
- Tenant gives the landlord notice of the breach of lease agreement.
- Tenant leaves the premises in satisfactory condition.
- Tenant pays all rent due through to the date of departure.
The Good Guy Clause benefits landlords, but also tenants as they will not be liable for any future lost rental costs due to a breach of the office space lease agreement, something that could potentially be very pricy in New York.
So is New York City’s Good Guy Guarantee, well, good? Let’s examine two different situations that involve the tenant breaking a lease; one with a lease that involved a Good Guy Guarantee and one that did not include the clause.
Breaking a Lease that has a Good Guy Guarantee
Imagine that a firm signed a new lease including a Good Guy Guarantee to rent office space in the city for five years. Unfortunately, the business fails after 18 months of being in the new space. How could the business owners possibly continue paying the rent on the space for the remaining period? The Good Guy Guarantee removes the tenant’s financial liability on the premises for the remaining years. Obligations of the Good Guy Clause require they be the “Good Guys” and do the following:
- Notify the landlord that they will no longer be able to make lease payments on the property.
- 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.
The Good Guy Clause provides landlords and the tenant with financial security as the tenants will not have to pay the landlord for the months remaining on 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 tenant for one year, but yet again, the firm’s business fails. They cannot pay rent for the space. Without conditions set out in 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.
The Good Guy Clause is therefore important for a tenant’s personal and financial security. It allows the tenant to be released from any lengthy term obligations on the space they leased.
Not All NYC Good Guy Guarantees are Created Equal
In New York City the Good Guy Guarantee protects both the landlord and the tenant. But be aware that Good Guy Guarantees aren’t always required by landlords to lease office space. Every lease is different. As a tenant looking to lease a new space, 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 new lease, here are some clauses you should examine in the guaranty or agreement:
Good Guy Guarantees and Sub-tenants
How does a Good Guy Guarantee affect your business if you sublet the office space? What if you, the current tenant, sublet the available space to a sub-tenant who fails to vacate the space when the lease ends? Or the sub-tenant does not maintain the condition of the space? 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 or were to leave the space in poor condition, the current tenant liability lies with whoever’s name is on the guaranty. Therefore before you sign a new lease agreement, make sure this situation is covered fairly and the right contact is personally liable.
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 considered a tenant or responsible contact 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 New York commercial landlords may have different definitions of the Good Guy Guarantee, please be sure to always check the fine print for discrepancies other than the ones mentioned above. For example, some landlords may include a specific requirement that the space be returned to its original condition 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, and therefore payments before vacating, which effectively negates a Good Guy Guarantee’s benefits for tenants.
To avoid any confusion around the Good Guy Clause or any other conditions set out in commercial leases check out the rest of our Leasopedia. And for all New York City commercial lease information be sure to connect with a licensed tenant broker or lawyer for help. You’ll thank yourself later!