Anyone who's looked at a business rental agreement in New York City has heard of the "good guy guarantee."
The guarantee is part of the rental agreement that allows a tenant to be released from a rental agreement early if they vacate the space and leave it in a favorable condition.
The good guy guarantee has been popular in New York in business rental agreements for several years. A typical good guy guarantee requires a creditworthy tenant (usually principal in the tenant's business) to guarantee the rent obligations under the lease through the date the tenant surrenders the leased space back the landlord.
Good guy guarantees in lease agreements are personal guarantees that are limited. That is if you personally guarantee the lease for your business location then your guarantee will be typically limited to past due rent or a set amount but not for the rent due throughout the entire term of your business lease.
Basically, this is what the "good guy" does:
- Provides landlord with enough notice that tenant will be vacating the leased premises
- Pays all rent obligations to landlord up and until the surrender date of the premises
- Delivers the premises in "broom-clean" condition and
- Removed all possessions and rubbish from the premises when moving
The guarantee was first created by landlords to motivate tenants to avoid landlord-tenant litigation cases.
Here's how it works.
If you're a tenant and your business fails, but you vacate your space and pay rent through the date you vacate, you're a "good guy." A good guy clause limits the liability of the personal guarantor for a tenant when a lease is terminated early. If the tenant defaults on the lease, but is current on rent payments and surrenders the property in good condition, payment will not be sought. The guarantee provides that the landlord WILL NOT enforce rental agreement penalties as long as the tenant vacated the premises and paid all rent up to the date of termination.
The Parties to a Lease Involving A Good Guy Guarantee
In the typical small business lease agreement the parties involved are the:
- Tenant who is typically a corporation or limited liability company; and
- Individual shareholder/owner of the corporate tenant.
Since most small businesses do not possess substantial assets or a complete earnings track record, most commercial landlords require their small business lease agreements to be guaranteed by the "individual" shareholder / owner of the corporate tenant.
It's important when negotiating a good guy guarantee that a tenant's attorney include provisions allowing for the release of tenants from the rental agreement if the business closes or is sold, or if an assignment of the lease happens.
What Should Be In A Good Guy Guarantee?
A "good guy guarantee" refers to the limited personal guarantee of the corporate tenant's individual owner. Although the form of this "good guy" guarantee is subject to variation it provides for the termination of the "individual personal guarantee" upon the satisfaction of the following "good guy" acts:
- Providing the landlord with pre-notice of the termination / breach of the lease agreement;
- Surrender of the business premises in good and proper condition; and
- Satisfaction and payment of all past due rent and additional rent obligations.
The benefit of a "good guy guarantee" is that an individual guarantor will not be liable for "future lost rent" in instances involving the early termination / breach of the lease agreement.
All parties in a rental agreement should develop a clear understanding of what the good guy guarantee should and shouldn't include. An experienced business lawyer can help you set up the basic provisions of the good guy guarantee.
For more about how Mr. Internicola and the attorneys at The Internicola Law Firm, P.C. assist clients in business space rentals, call us at (718) 979-8688.