Well to start off, I’ll tell you what it certainly is not. A Good Guy Guarantee is not an early cancellation or termination option by the tenant.
The Good Guy Guarantee is actually a limited personal guarantee that developed as a compromise between landlords and tenants.
Landlord perspective: The challenge for landlords was to create a means of guaranteeing a tenant will not be in an office during the long eviction process while at the same time not paying rent. Until the tenant is evicted, or moves out/surrenders the space, the landlord cannot rent to another party. The ideal situation would be to have someone within the company personally guarantee the lease on behalf of the tenant. Thus, ensuring they will have rent no matter if a tenant can no longer pay.
Tenant perspective: In no way is it a wise decision to personally guarantee a lease on behalf of a business. It is not uncommon for a business to not succeed, especially in the fast paced NYC market, and in the case of a personal guarantee that would put all of the company’s debt on the guarantor. For someone to guarantee a lease, personally, there would need to be a way to protect the guarantor in the case that the business falters and can no longer fulfill its obligations to the landlord.
The “Good Guy” compromise: The “Good Guy Guarantee” is a limited personal guarantee by someone in the tenant’s company that personally guarantees that the tenant will pay rent while they are a tenant in the office. If the tenant surrenders the space, and successfully moves out, the individual guaranteeing the lease is no longer responsible as a guarantor. All of the liability will shift to the company. This allows for the landlord to have insurance that a tenant unable to pay rent will have incentive, in the form of the “Good Guy”, to move out, allowing the landlord to move on and rent to another prospective tenant.
(Important note: Usually it is required by the “Good Guy” to notify the landlord anywhere from three to twelve months prior to the intended move-out “surrender date”.)
I hope that this article helps prospective tenants better understand what it means when they hear the term “Good Guy Guarantee”. More information on this term and the leasing experience as a whole can be found in Redwood’s “NYC Leasing Guide” on our website.
– David Goldberg, Managing Director