What Is A Good Guy Guarantee In NYC Real Estate?
A Good Guy Guarantee is a clause typically found in commercial lease agreements in New York City.
Also known simply as a GGC, the Good Guy Clause helps tenants by limiting the amount of a security deposit and helps landlords to avoid a costly eviction process if the tenants stops paying their rent before the end of the lease.
What Are the Parts of a Good Guy Guarantee?
All commercial real estate leases are different, and the specific language of a lease and the Good Guy Clause will vary from one landlord to another. But all GGCs normally include three common elements:
Tenants must notify the landlord if they will be vacating before the lease ends.
Tenants must give the space back to the landlord clean, and free of any liens or obligations, such as a sublease.
Tenant must be current on the rents due up to the time the tenant vacates the space.
How Does A Good Guy Clause Help A Tenant?
A Good Guy Clause is signed by a principal of the business leasing the space. A GGC is a type of personal guarantee.
But – and this is a big ‘but’ – the personal liability of the business owner or principal is limited to any rent money due only up to the time that the tenant vacates the suite and leaves the space in good condition. Tenants who sign a GGC as part of their commercial NYC lease agreement usually pay a lower security deposit than those who don’t.
Sometimes tenants have no choice but to default on their leases and vacate early. Having a Good Guy Guarantee in the lease agreement is a promise by the landlord not to enforce any additional potential penalties contained in the lease – provided the tenant acts like a ‘Good Guy’. Once the tenant vacates the personal liability also ends.
How Does A Good Guy Clause Help A Landlord?
The main reason is that commercial real estate evictions in New York City can be long and costly. If a tenant stops paying rent but refuses to leave, evicting a tenant can sometimes take one year or longer – during which time the landlord isn’t receiving any rental income on the suite.
Good Guy Clauses were originally created by landlords to encourage tenants to willingly vacate the leased space if they become unable to pay the rent. GGCs allow landlords and tenants to avoid potentially costly and lengthy lawsuits, and allow the landlord to re-let the suite quickly.
Lastly, if a tenant with a GGC vacates early but doesn’t act like a Good Guy, the landlord can still go after the principal’s personal assets.
What Are the Things to Watch Out for in a GGC?
The benefits of having a GGC in a lease don’t occur automatically. A Good Guy Clause needs to be exercised by the tenant by giving proper notice to the landlord. The notice period can sometimes be up to six months in advance, depending on the terms of the specific GGC.
Tenants who sign Good Guy Guarantees should also remember:
If the tenant sublets its space or assigns its lease to another party, the GGC remains in effect. That means that if the sublessee or assignee leaves before the original lease ends, the original tenant is still on the hook for the lease.
If the tenant sells his or her business and a new lease isn’t drawn up, the GGC remains in effect, with the same potential risks as subletting or assigning.
To avoid these potential problems tenants should negotiate with the landlord to have their personal guaranty or Good Guy Clause end if the lease is assigned or the tenant’s business is sold with the existing lease in place.
Are GGCs Always Used?
Because all commercial leases are different, GGCs aren’t always part of an office lease, but they are common. Factors that influence whether a landlord includes a GGC as part of commercial office lease in Manhattan include:
Rental rate the tenant is offering to pay,
Credit history of the business and principals,
Conditions of the leasing market.
If the leasing market is strong, landlords can often get whatever they are asking for. But the opposite is true in a tenant’s market where space can be difficult to lease without concessions.
When is a Good Guy Guarantee not Used?
There are four typical times when a GGC isn’t signed:
None of the principals of the business are U.S. citizens,
The tenant’s company is publicly traded or financially very strong,
The landlord doesn’t ask for a Good Guy Guarantee,
The tenant refuses to sign a Good Guy Clause, which usually results in a higher security deposit being paid.