The Good Guy Guarantee (GGG) seems to be one of the most misunderstood components of a lease. The biggest misconception is that the GGG gives the tenant the ability to walk away from the lease without any ramifications. That is 100% false. The Good Guy Guarantee is not a get-out-of-jail-free card for the tenant. In fact, the GGG provides absolutely zero benefit to the tenant. The purpose of the GGG is to add an additional layer of protection to the landlord in the event that the tenant is unable to fulfill their lease obligation.
Why Do Landlords Need This Added Protection?
First off, when a landlord leases a space, they are contributing a tremendous amount of upfront capital, between the cost to build the space, paying an architect, an engineer, filing the job with the DOB, providing a free rent period, and paying the broker. These costs can run anywhere from one year’s worth of rent to four years’ worth of rent. That is a big risk to take if a tenant is not financially strong or has limited assets.
➡️ For more details on how landlords manage upfront costs and concessions, read Deal Economics in a NYC Lease: What You Need to Know.
Secondly, in NYC, it is very easy for a tenant to take advantage of a slow-moving court system and remain in a space being a “bad guy,” and not paying rent for three to six months. The landlord will never get enough security deposit to cover the potential loss of a tenant going bad, so the GGG is there to aid the landlord in getting possession of their space if a tenant is forced to close their business or just stops paying rent. (Yes, unfortunately, it happens.)
What Is a Good Guy Guarantee?
It states that one or more of the principals of the company will guarantee to the landlord that all base and additional rent payments provided for under the lease will be paid in full up until the day the space is surrendered to the landlord—whether or not that occurs prior to the expiration of the lease term. Once the space is returned to the landlord broom clean and vacant with all rent paid through the date of surrender, then the guarantor has fulfilled their obligation under the GGG, and the GGG is no longer in effect and principal(s) are released from all personal liability.
➡️ For insights into how lease terms like these impact tenants, check out Why Length of Lease Matters.
Misconceptions About GGG
Corporate Entity Liability:
The big next misconception is that the corporate entity that entered into the lease is also released. That is not the case. The corporate entity will remain liable for all lease obligations even after the space is vacated. The corporate entity is also not entitled to the return of the security deposit if they vacate prior to lease expiration.Notice Period:
The tenant will typically be required to give prior notice to the landlord of its intent to vacate. This can be anywhere from 60–180 days. The guarantor is liable for all rent obligations during this notice period, and these obligations would not be reduced by any security deposits held by the landlord.
Landlord Tactics
Landlords and their attorneys have become very clever about the GGG and will sometimes add items that are not in the spirit of it. For example, I have seen landlords ask to be reimbursed for their unamortized free rent concessions, tenant improvement allowances, brokerage commission, and legal fees. This should be negotiated out.
➡️ For strategies on negotiating favorable lease terms and avoiding pitfalls like these, explore Blend and Extend.
An experienced New York City broker and real estate attorney can advise on these issues.
Paul Walker
212-984-7117