A Good Guy Clause is a commonly used in NYC personal guaranty, which protects both the tenant and the landlord. Typically, it is signed by the tenant personally or tenant’s business affiliate such as business partner or investor, who guarantees to fulfill all obligations under the lease and, in exchange, the landlord agrees to allow the tenant to terminate the lease early provided all rent has been paid in full, landlord has been given sufficient notice of termination (usually 3 months), the premises are delivered in “broom-clean” condition and tenant has completely vacated the premises, removing all his possessions and trash. At that point, both tenant and the guarantor are released from all obligations under the lease.
The good guy clause protects commercial tenants by giving them an option to terminate the lease in the event their business venture turns out not to be profitable, which is especially important for start-up companies. The good guy clause protects commercial landlords in that tenants who could otherwise default on the rent are motivated to surrender the premises early thereby avoiding arduous landlord-tenant litigation. Moreover, having an additional guarantor, who is not a limited liability company but rather an individual, offers additional assurance to the landlord that all rent will be paid.
Things to watch out for if you are a commercial tenant:
- Consider your options. While it may be advantageous for you to be able to terminate the lease early, you are signing a personal guaranty. If the lease is signed exclusively by your company and your business goes bankrupt, all you lose is your security deposit.
- Read the clause carefully to make sure you are not waiving your right to receive the security deposit back after you surrender the premises. Some landlords will try to keep the deposit in exchange for early termination, which is not standard procedure.
- Pay close attention to the length of notice required by the landlord. Anything over 3 months may in practice become impossible to fulfill. If your business is bleeding money, you do not want to keep paying rent for longer than absolutely necessary.
- Some landlords may try to manipulate the good guy clause by setting a minimum occupancy period before the clause may be exercised. For example, if your lease is for the term of 3 years and the landlord requires you to pay the rent for at least 2 years before you can give 6 months notice of early termination and then the landlord is allowed to keep your security deposit, you might as well not enter into the good guy clause at all.
- Finally, don’t miss the good guy clause in the paperwork you are presented with at the lease signing. Some landlords will throw in the good guy clause without notification.
Sample Good Guy Clause:
The undersigned hereby covenants and agrees that if there shall occur any default by Tenant in the payment of fixed rent or additional rent or any other charges set forth in the Lease, or if Tenant shall default in the performance of any of the covenants, terms, conditions and agreements contained in the Lease then the undersigned shall in each and every instance up to and including the Release Date (as defined below) (i) pay such fixed rent, additional rent and any other charges due and payable by Tenant to Landlord (ii) faithfully perform and fulfill all of such covenants, terms, conditions and agreements to be performed by Tenant as set forth in the Lease, and (iii) pay to Landlord all consequential damages that may be incurred by Landlord as the result of any default by Tenant under the Lease including without limitation all attorneys’ fees and disbursements incurred by Landlord as a result of any such default and/or the enforcement of any of the provisions of the Good Guy Clause. The “Release Date” shall mean the upon which Tenant returns to the Landlord the keys to the Premises and surrenders possession of the Premises in the condition required by the Lease as of the expiration or termination thereof free of all tenancies or rights or claims of occupancy by Tenant or any party claiming through Tenant.
A Good Guy Clause is a commonly used in NYC personal guaranty, which protects both the tenant and the landlord. Typically, it is signed by the tenant personally or tenant’s business affiliate such as business partner or investor, who guarantees to fulfill all obligations under the lease and, in exchange, the landlord agrees to allow the tenant to terminate the lease early provided all rent has been paid in full, landlord has been given sufficient notice of termination (usually 3 months), the premises are delivered in “broom-clean” condition and tenant has completely vacated the premises, removing all his possessions and trash. At that point, both tenant and the guarantor are released from all obligations under the lease.
The good guy clause protects commercial tenants by giving them an option to terminate the lease in the event their business venture turns out not to be profitable, which is especially important for start-up companies. The good guy clause protects commercial landlords in that tenants who could otherwise default on the rent are motivated to surrender the premises early thereby avoiding arduous landlord-tenant litigation. Moreover, having an additional guarantor, who is not a limited liability company but rather an individual, offers additional assurance to the landlord that all rent will be paid.
Things to watch out for if you are a commercial tenant:
- Consider your options. While it may be advantageous for you to be able to terminate the lease early, you are signing a personal guaranty. If the lease is signed exclusively by your company and your business goes bankrupt, all you lose is your security deposit.
- Read the clause carefully to make sure you are not waiving your right to receive the security deposit back after you surrender the premises. Some landlords will try to keep the deposit in exchange for early termination, which is not standard procedure.
- Pay close attention to the length of notice required by the landlord. Anything over 3 months may in practice become impossible to fulfill. If your business is bleeding money, you do not want to keep paying rent for longer than absolutely necessary.
- Some landlords may try to manipulate the good guy clause by setting a minimum occupancy period before the clause may be exercised. For example, if your lease is for the term of 3 years and the landlord requires you to pay the rent for at least 2 years before you can give 6 months notice of early termination and then the landlord is allowed to keep your security deposit, you might as well not enter into the good guy clause at all.
- Finally, don’t miss the good guy clause in the paperwork you are presented with at the lease signing. Some landlords will throw in the good guy clause without notification.
Sample Good Guy Clause:
The undersigned hereby covenants and agrees that if there shall occur any default by Tenant in the payment of fixed rent or additional rent or any other charges set forth in the Lease, or if Tenant shall default in the performance of any of the covenants, terms, conditions and agreements contained in the Lease then the undersigned shall in each and every instance up to and including the Release Date (as defined below) (i) pay such fixed rent, additional rent and any other charges due and payable by Tenant to Landlord (ii) faithfully perform and fulfill all of such covenants, terms, conditions and agreements to be performed by Tenant as set forth in the Lease, and (iii) pay to Landlord all consequential damages that may be incurred by Landlord as the result of any default by Tenant under the Lease including without limitation all attorneys’ fees and disbursements incurred by Landlord as a result of any such default and/or the enforcement of any of the provisions of the Good Guy Clause. The “Release Date” shall mean the upon which Tenant returns to the Landlord the keys to the Premises and surrenders possession of the Premises in the condition required by the Lease as of the expiration or termination thereof free of all tenancies or rights or claims of occupancy by Tenant or any party claiming through Tenant.
