The “Good Guy Guaranty” (often written as “Good Guy Guarantee”), is found in most commercial leases in New York City, and it creates a few indirect benefits for tenants looking to lease commercial office space in NYC while providing protection and peace of mind for landlords.
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The Good Guy Guaranty (or GGG) is a special clause in a commercial lease agreement that allows one or several guarantors to be held personally responsible for timely rent and other payments to the landlord included on the lease, as long as the tenant remains in that space. If the tenant is forced to leave their space early, they must notify the landlord 3 to 6 months in advance, ensure that they pay all rent due until they leave, and vacate their offices in “broom-clean” condition. Upon doing so, the guarantors of the Good Guy Guaranty will no longer be bound by the terms of that personal guaranty. At that point, the tenant will lose their security deposit and they could still see potential legal action taken against the entity on the lease, which will be up to the landlord.
An owner of the entity signing the lease, usually signs the Good Guy Guaranty. That person will serve as guarantor for the entire term of the lease. Sometimes, several owners act as Good Guy Guarantors. Examples and detailed discussions are available in our Good Guy Guaranty video.
The Good Guy Guaranty does not simply allow the tenant to break their lease consequence-free. Rather, it’s meant to protect the landlord against needing to begin eviction proceedings against a tenant who is staying in their office space but not paying rent. In the event that the tenant is behind on rent and refusing to vacate, the guarantor(s) who signed the Good Guy Guaranty clause are personally responsible for paying those costs. Historically, courts have almost always upheld judgments against GGG guarantors in cases where there is a clear breach of the Good Guy Guaranty agreement.
Even in a scenario where a tenant is up-to-date on rent payments but chooses to leave their space early and therefore break the terms of the lease by doing so – the landlord is still within their right to take legal action against the entity on the lease to collect, fully or partially, the amount that would’ve been paid for the remainder of the tenant’s lease. However, in that scenario, the Good Guy Guaranty would have no effect, since the conditions of that clause would have been met. Any judgment would be against the entity on the lease, not the guarantors of the Good Guy Guaranty (unless they are the same individuals).
Historically, tenants who have not fulfilled the requirements of the Good Guy Guaranty clause, have been caught off guard. For instance, the space must be left “broom clean” – and this should be taken seriously. No extra furniture, no garbage and no damage to premises. Everything should be photographed and documented, and any verbal agreement with the landlord as to what state the property should be left in, should be put in writing – otherwise it will not be admissible in courts.
Metro Manhattan Office Space helps tenants with negotiating favorable leases with landlords while avoiding hidden risks which could create problems for tenants in the long term. We also help tenants understand the impacts of specific items in those agreements, including the Good Guy Guaranty. If you are looking to rent an office in New York City, whether you are a Law Firm or a Hedge Fund, we can help you find the space you are looking for.
Call us to discuss your needs at (212) 444-2241.
Personal Guarantees can be intimidating even if they are limited. In the case of a Good Guy Guaranty, as long as the guarantor vacates a space without owing their landlord back rent there is nothing to be afraid of.
Surprisingly, other terms of a real estate transaction can have a far greater economic impact on a commercial tenant leasing office space in New York City. The following aspects of an office, loft, retail, or medical lease can impact real estate costs to a far greater extent than a Good Guy Guaranty:
The tenant signing a commercial lease could indirectly benefit from a Good Guy Guaranty. The GGG clause provides peace of mind to the landlord by reducing the risk of litigation, since landlords almost always end up paying their own litigation costs. As a result, a landlord is more likely to agree to a reduced security deposit. To avoid a risk of personal liability for missed rent payments, the Good Guy guarantor(s) must comply with the following:
Liability to the Good Guy Guarantor occurs if the tenant doesn’t respect the obligations stated above. If all the requirements are fulfilled by the time of departure, the guarantor is not liable for the remaining lease payments. Note that the tenant’s security deposit will be forfeited in the event that the Good Guy Clause is exercised.
The purpose of a Good Guy Guaranty (or GGG) is to reduce the landlord’s risks in signing a commercial lease. If the tenant breaks the lease before the lease term expires, or vacates without being up-to-date on their rent payments, the landlord will have no other choice than to take that tenant to court. The two following scenarios illustrate how a Good Guy Guaranty works:
Let’s say a commercial tenant signs a five-year lease for an office space in NYC. The tenant is both the entity on the lease, and the sole guarantor for the Good Guy Guaranty. The tenant breaks their lease and vacates the space early after three years. They make sure that they are up-to-date with rent and other payment obligations up to that point, as part of the original lease agreement. In that situation, the guarantor (tenant) cannot be held personally responsible as part of the Good Guy Guaranty. Their personal liability ends on the day that they vacate the space. The landlord, still reserves the right to take the entity on the lease to court for breaking the lease, but they may often decide not to do so.
Now, let’s imagine the same situation, but where the tenant defaults on their lease and remains in the space without paying rent. The landlord is forced to commence an eviction proceeding. It then takes the court six months to evict the tenant. The Good Guy guarantor is personally liable for rent payments while the tenant has occupied the space without paying rent. The court is very likely to side with the landlord in that scenario, and the guarantor will maintain personal responsibility for missed rent payments, which could even lead to a personal bankruptcy for the tenant.
If a commercial tenant is subletting a space to another business, the Good Guy Clause remains in effect. This means that, if the sublessee leaves the space before the lease term expires, the original tenant is still the one responsible for the lease. The same principle applies if a company is sold: the original Good Guy Guarantor remains on the hook for the lease. In the event of a company buyout, the landlord might agree to substitute a new Good Guy Guarantor that is a principal of the company acquiring the tenant, and to release the original guarantor from their obligations.
A Personal Guaranty is a guarantee of term, meaning that it remains in effect for the full duration of the lease. A Good Guy Guaranty is a guarantee of payment and only applies while the tenant occupies the space.
Consequently, if the tenant vacates before the end of the lease, a Personal Guaranty makes them responsible for rent payments until the end of the lease term. In contrast, a Good Guy Guaranty’s ends the guarantor’s liability on the day that the space is vacated, and other conditions of the Good Guy Guaranty are fulfilled. Tenants are encouraged to read the GGG thoroughly to understand everything that is required of them.
Most commercial space leases in NYC include a Good Guy Clause. However, in some cases they are not necessary, or not even possible. Here are some potential situations:
For more information and detailed discussions, see the Metro Manhattan Office Space video on Good Guy Guarantees, presented by our principal broker:
