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Office Leasing: The Good Guy Guarantee

Commercial Real Estate Good Guy Guarantee

In office leasing, the good guy clause is often misunderstood. Here’s what you need to know when looking for office space.

First, it’s important to understand why the good guy clause was created. The Good Guy Guarantee provides an added layer of protection for commercial property owners since they can rely on it to prevent a tenant in office space from squatting if they do not meet their lease obligations. The term of the Good Guaranty varies from landlord to landlord, so it’s important to read the fine print carefully to make sure it covers your specific needs. For example, some landlords require you to restore your space to its original state and pay for any required repairs before the next tenant moves.

The good guy is not a personal guarantee but rather a limited liability guarantee. It’s a guarantee up until the point in time when the keys are given back to the landlord and the space is delivered in “broom-clean” condition. It incentivizes a tenant to give back the space so that they can personally get off the hook. The landlord can still go after the entity on the lease for the remaining lease obligation. One doesn’t have to do with the other. There is a misunderstanding by some that electing the good guy means you no longer owe the money on your lease. This is FALSE and important to highlight. And it’s also important to remember there’s that security deposit that the landlord is holding. Please don’t expect that to be returned. It will be applied to part of your remaining lease obligation.

Another point to consider is the notice period in the good guy. As a tenant you want to ensure this is as short as possible so that you can decide to hand back the keys with as little notice instead of being held to 6-12 months of a notice period (which means you are then responsible for all that rent as well)

One risk associated with signing a good guy is that you leave the firm you are with you are still on as the good guy, so its important to make sure that it can be transferred if you leave the company, and you are not the owner or even if you are and you sell the company.

Other things to think about?

  • Watch that the good guy only covers payment rather than the performance of other parameters of the lease
  • Watch that the good guy is in fact a good guy and not written as a personal guarantee
  • Don’t get stuck having to restore the space and remove alterations. You just want to give back the keys, sweep the place, and be done.
  • Make sure you don’t have to pay for unamortized construction and deal costs like free rent and TI dollars
  • The solution to not signing a good guy altogether? Put more security deposit upfront.

Hope this helps. Please feel free to contact me if you have any questions.

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