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.
Jump to relevant headings:
- What is a Good Guy Guaranty?
- Important facts to know about Good Guy Guarantees
- How can your broker help with the Good Guy Guaranty?
- Should you be afraid of signing a Good Guy Guaranty?
- How can a tenant benefit from a Good Guy Clause?
- Good Guy Guaranty example scenarios
- What if the tenant sublets the space or undergoes a buyout?
- What is the difference between a Good Guy Guaranty and a Personal Guaranty?
- Are there instances when a Good Guy Guaranty is not applicable?
What is a Good Guy Guaranty?
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.
Important facts to know about Good Guy Guarantees
- The Good Guy Guaranty does not simply allow the tenant to break the lease early; it only lifts personal responsibility from Good Guy guarantors, if all of its clause conditions are met.
- If a tenant is up-to-date on rent, and they leave the space early and in “broom clean” condition, the guarantors of the GGG may be in the clear, but the entity on the lease could still potentially see legal action for breaking the lease.
- “Broom clean” means no furniture, no trash, and no damage the property – otherwise, the GGG may still be enforced in court. To that end, it is a good idea for both the landlord and the tenant to photograph and document the condition of the office space.
- Whether the tenant’s security deposit can count towards the tenant’s late rent, depends on the wording of the Good Guy Guaranty clause.
- Any agreements between landlord and tenant which are relevant to the GGG, should be put in writing.
- The tenant must notify the landlord in writing and deliver the keys to the landlord or managing agent to complete their responsibility for the Good Guy Guaranty.
- If a tenant accepts the space in “as is” condition as per the writing in the lease, but changes their mind because of circumstances unrelated to the lease, the Good Guy Guaranty will still apply and courts may find the guarantors responsible in most cases.
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.
How can your broker help with the Good Guy Guaranty?
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.
Should you be afraid of signing a Good Guy Guaranty?
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:
- Relocation Clause
- Demolition Clause
- Rent Escalations
- Rent Acceleration Clause
- Build Out Allowance
- Security Deposit
How can a tenant benefit from a Good Guy Clause in NYC?
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:
- The tenant needs to notify the landlord of their departure in advance (usually three to six months ahead, but this can be negotiated).
- The tenant needs to be up-to-date with rental payments, utility bills, and any other additional costs included in the lease agreement.
- The space needs to be returned to the landlord in “broom clean condition”.
- The keys must be returned to the landlord or managing agent by the tenant.
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.
Good Guy Guaranty example scenarios
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:
Scenario 1: Tenant breaks lease and vacates the space early, and is current on their rent on surrender date.
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.
Scenario 2: Tenant Breaks Lease and vacates the space early, but owes the landlord 6 months of rent on surrender date.
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.
What if the tenant sublets the space or undergoes a buyout?
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.
What is the difference between a Good Guy Guaranty and a Personal Guaranty?
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.
Are there instances when a Good Guy Guaranty is not applicable?
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:
- The Good Guy guarantor is not a U.S. citizen. This means that they cannot sign a GGG agreement. The clause must be signed by a principal of the tenant’s company, and they must have U.S. citizenship. For legal reasons, landlords will not agree to a Good Guy guarantor with no assets in the U.S.
- If the tenant is a publicly-traded company – in which case there is typically no individual owner to serve as the Good Guy guarantor
For more information and detailed discussions, see the Metro Manhattan Office Space video on Good Guy Guarantees, presented by our principal broker: