Explaining The Good Guy Clause

A good guy clause is a limited personal guarantee. The distinction between a good guy clause and a traditional/full personal guarantee is that in a good guy clause an individual’s personal liability ends when the space is vacated. Therefore, if a company dissolves and the space is vacated, the individual is absolved of any further responsibility.

Good guy clauses evolved as a compromise between landlords and tenants in New York City and are now a standard component of commercial leases in Manhattan.

Landlords were having problems with companies going bankrupt, defaulting on their rent payments, and not surrendering the spaces. The eviction process can be very extensive and typically takes about 6 months.

In order for a landlord to feel secure they had wanted either 6 months security deposit or a personal guarantee from the tenant.

A good guy clause basically states that if a company defaults (for bankruptcy or any other reason), the individual that signed the good guy clause is responsible for the rent in between the default date and the surrender date (when the space is vacated). This way, if the company goes bankrupt, the tenant still has an incentive to vacate the space, but is not responsible for the remainder of the lease if they cooperate and “be a good guy”.

For example, if Company X stops paying rent June 1 and Company X leaves June 1, the good guy is completely off the hook.

If Company X stops paying rent June 1 and Company X leaves July 1, the good guy owes the landlord rent for the month of June.

Good guy clauses usually, but not always, contain notice provisions (between 30 and 180 days) that can sometimes be negotiated.

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.