What you need to know about the Good Guy Guarantee NYC.
The Good Guy Guarantee 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 is unable to fulfill their lease obligation.
Why do the Landlord’s 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 he job with the DOB, providing a free rent period, and paying the broker. These costs can run anywhere from one years’ 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. 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 is aid the landlord is 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paid through the date of surrender, then the guarantor has fulfilled their obligation under the GGG, and the GGG is no longer in effect and principal(s) are released from all personal liability.
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 the lease obligations even after the space is vacated. He corporate entity is also not entitled to the return of the security deposit if they vacate prior to the lease expiration.
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.
Landlords and their attorneys have become very clever about the GGG and will sometimes add items that are not in the spirit of the GGG. 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.
An experienced New York City broker and Real Estate attorney can advise on these issues.
Many of brokerage websites claim that their firm will find you “The Perfect Office Space.” As a successful 30-year industry veteran, I am sorry to say, that unless you have Jeff Bezos or Elon Musk type money, and cost is not a factor, otherwise the perfect space is going to be a series of well thought out business decisions and comprises.
Any broker can run a space search. That’s easy. The skill is working with the client to educate them on the market and asking the right questions in order to fine tune the requirement. The requirement is often fluid as once the client better understands the market and receives feedback from their colleagues, the search is adjusted to better reflect the true needs and priorities.
I always begin by discussing the following three categories: The Financial, The Operational and The Qualitative.
Financial: The financial considerations are not limited to just rent. The amount of construction required to make the space work is an enormous consideration in a lease negotiation. How much is the work going to cost, and how much of it is the Landlord willing to pay for? The cost of the work is going to significantly impact the economics of a deal. Other financial considerations in a lease negotiation include, the annual escalation, the real estate taxes, electric, office cleaning and carting, and miscellaneous charges such as water and sprinkler.
Operational: I don’t care how beautiful and well-priced a space is. If your business cannot operate in the space in an efficient manner, then the space simply does not work. End of story! Is the space the right square footage, does the space allow you to create your desired layout, does the space work for fostering collaboration and productivity, does the space allow for future growth, etc.? What are the hours of heating and cooling? How old is the air-conditioner? What is the fixture count in the bathroom? Your business will likely remain in a space for 5-10 years, so all of these items need to be well thought out from the start, or those 5-10 years will be very long.
Qualitative: Does the location work well for all the employees? How close is to the building to mass transit? Is it easy to visit clients or for clients to visit you? Are their good dining and take out options in the neighborhood? Does the building have amenities? What is the reputation of the Landlord? Has the lobby and elevators been renovated? How is the light and views. Getting this right will make everyone much happier working in the office.
Working with an experienced broker to help navigate this process is essential. The perfect space may not be completely apparent in the beginning, and the first preferred option may ultimately not make the most sense when further evaluated. The key takeaway should be, there most likely isn’t a perfect space. There is a space that makes the most sense for your business when taking into account all the above considerations.
I would be delighted to discuss your occupancy plans and provide my thoughts.
Paul Walker
Senior Vice President
Paul.Walker@cbre.com
212-984-7117