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GOOD-GUY GUARANTEES
October 7, 2019 Posted in Landlord/Tenant Law Share
Good-Guy Guarantees are a staple of business rental agreements in New York.
The purpose of a Good-Guy Guarantee is twofold. It allows a tenant to maintain limited rent liability. Simultaneously, it provides tenants with an additional incentive to avoid defaulting on the lease. It is essential that the Good-Guy Guarantee is adapted appropriately.
Commercial landlords require a “guarantor” for various reasons to sign on the lease for any rented space. These guarantors, who tend to be the owner of the renting business, agree to become personally liable on the lease if the company itself defaults. Put another way: A landlord might not be willing to rent to a business, unless it has a personal guarantee that, should the business fail to pay rent, the guarantor will pay instead.
In a typical Good-Guy Guarantee, a lease will contain a clause that permits the tenant to surrender and vacate the premises early, under certain conditions. The landlord will not seek payment for the remainder owed on the lease providing the tenant meets specific requirements: First, the business has remained current on all its rent obligations through the date of surrender. Second, the tenant provides appropriate notice to the landlord. Third, the tenant leaves the premises in good, clean, and rentable condition (as specified by the lease).
Naturally, a landlord would prefer if the tenant paid the entirety of the lease. However, if a business is unable to pay, a Good-Guy Guarantee can help the landlord avoid litigation and permit it to find a new tenant more quickly. Certainly, guarantors would prefer their companies did not default. Though, when circumstances prohibit a business from making payments, a Good-Guy Guarantee can help the guarantor avoid liability on the lease.
One should consider the specifics of the language in any Good-Guy Guarantee. Some clauses of notable importance include the amount of notice required before a tenant surrenders the premises, how much rent a tenant owes when vacating early; and the condition of the premises upon surrender. It is in these clauses that one may see a tug-of-war between landlord and tenant.
While a ninety-day notice requirement is usually standard, there can be benefits for shorter or longer notice requirements. Along with base rent, a Good-Guy Guarantee should detail those additional rents for which a tenant becomes responsible upon surrender (e.g., costs to cure; attorneys’ fees; any indemnity obligations). As commercial leases involve significant modifications to the rented space, providing for the removal of custom fixtures and the cleaning of the premises are important considerations.
It is essential with every Good-Guy Guarantee to understand the terms of the contract before signing it. Otherwise, a landlord and guarantor may find themselves in court, despite the presence of an arrangement designed to avoid such an eventuality.
For any questions about this blog, or to schedule a consultation with an attorney, contact Griffin Alexander, P.C. at 973-366-1188 or through our website here!
The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.
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