Real Estate is Local
One of the intricacies of the New York office leasing market is the concept of the Good Guy Guarantee. As I find myself explaining this to clients all the time I figured perhaps putting pen to paper might help others in the future as well. So below please find my explanation of a good guy guarantee and how it compares and contrasts to a personal guarantee.
When leasing office space, landlords often require some form of guarantee to ensure that rent payments will be made and the property will be returned in good condition. Two types of guarantees commonly used in office leases are good guy guarantees and personal guarantees. While both serve to provide additional security for the landlord, they differ in their purpose, scope, and limitations.
What is a Good Guy Guarantee in an Office Lease?
A good guy guarantee is a type of guarantee that is often used in office leases to provide additional security to the landlord in case the tenant defaults on rent payments or fails to comply with other lease obligations. Its origins are in the late 1970s in New York City as a way to prevent squatting by tenants who were not meeting their lease obligations. This type of guarantee is typically given by an individual, often the principal of a small business or a sole proprietor.
Under a good guy guarantee, the tenant agrees to meet certain conditions in order to limit their liability. These conditions usually include paying rent on time, vacating the property in good condition, and not causing any damage to the property. If the tenant meets these conditions and returns the keys back to the landlord, the guarantee is released, and the tenant is no longer held responsible for any unpaid rent or damages that occur after they vacate the property.
However, if the tenant fails to meet these conditions, the guarantee remains in effect, and the landlord can hold the individual responsible for any unpaid rent or damages. Essentially, a good guy guarantee provides a landlord with a level of security in the event of tenant default or abandonment of the property.
A Good Guy can not be an entity it can only be an individual. This guarantee by an individual incentivizes them to make sure the keys are handed back to the landlord, back rent is paid and the space is returned in broom-clean condition if in fact they are no longer meeting their lease obligation.
It’s also worth mentioning there is often a notice period including in the Good Guy which asks that a tenant must give some period of notice (often somewhere between 30-90 days) before the keys are given back. This notice period helps give the landlord a heads-up to try and release the space along with some additional guaranteed income. This all means that the tenant’s goal should have this notice period as short as possible with 30 days being most likely.
Often additional security deposit will be required if a Good Guy Guarantee is not signed.
What is a Personal Guarantee in an Office Lease?
A personal guarantee is a type of guarantee that is also used in office leases. This type of guarantee is usually given by an individual or business owner who is seeking to lease an office space but may not have sufficient credit or financial standing to meet the landlord’s requirements.
Under a personal guarantee, the guarantor (individual or business owner) agrees to be personally liable for rent payments and any other obligations specified in the lease agreement for the entire term of the lease. In other words, if the tenant defaults on rent payments or fails to meet other obligations, the guarantor is responsible for fulfilling them.
This means that the landlord can seek payment from the guarantor if the tenant fails to pay rent or meet other obligations under the lease agreement. In many cases, personal guarantees are required for new or small businesses that may not have an established credit history.
Differences between Good Guy Guarantees and Personal Guarantees in an Office Lease
1. Purpose: The main difference between a good guy guarantee and a personal guarantee is their purpose. A good guy guarantee is intended to provide additional security to the landlord in case the tenant defaults on rent payments or vacates the property before the lease term ends. And it was created to prevent squatting – tenants staying in the space if not paying for it. A personal guarantee, on the other hand, is intended to provide the landlord with the assurance that rent payments will be made, even if the tenant defaults.
2. Scope: The scope of a good guy guarantee is typically limited to unpaid rent and damages that occur before the tenant vacates the property. In contrast, the scope of a personal guarantee is broader and covers all aspects of the lease agreement, including rent payments, damages, and other obligations.
3. Parties Involved: A good guy guarantee involves the tenant and the landlord, while a personal guarantee involves the tenant, the guarantor, and the landlord. The guarantor assumes a greater level of responsibility in a personal guarantee than in a good guy guarantee.
4. Release of Liability: In a good guy guarantee, the tenant’s liability is limited if they meet certain conditions, such as paying rent on time and vacating the property in good condition. In a personal guarantee, the guarantor’s liability is not released until all lease obligations are met, including rent payments, damages, and other obligations.
5. Enforcement: If a tenant defaults on rent payments or fails to meet other obligations under the lease agreement, the landlord can go after the individual in a personal guarantee for the entire term. The good guy can only be enforced until the keys are returned back to the landlord, the rent is paid up to date and the space is returned in broom-clean condition.
As always it is important to work with an office leasing attorney before a lease is signed as the lease is written by landlords for landlords and is a binding financial obligation.