Understanding the Good-Guy Guarantee

A "good-guy guarantee" is an agreement between a landlord and a tenant in a commercial real estate lease that gives the landlord an added layer of protection in the event the tenant defaults. The document itself is a limited personal guarantee that a principal of the company signs in order to incentivize the landlord to approve the tenant. Unlike a "traditional" guarantee, with a GGG, the signatory's personal liability ends when the conditions of the guarantee are met.

Of course, if the tenant pays their rent through the lease term and vacates the premises by the agreed-upon date, the good-guy guarantee never comes into play. However, if the tenant stops paying rent during the lease term and plans to vacate the office space, they can exercise the good-guy.

The process for exercising the good-guy guarantee depends on what your attorney and the landlord's attorney agree upon, but here are the basics:

1. The tenant provides notice to the landlord: If the tenant decides to exercise the good-guy guarantee, they must provide written notice to the landlord of their intention to vacate the premises. The notice period is negotiable and tends to fall between 60 and 180 days.

2. The tenant pays all rent due through the notice period. If the good-guy guarantee stipulates a 6-month notice period, the tenant must pay six additional months of rent. They can continue to occupy the office during this time.  

3. The tenant vacates the property: Following the notice period, the tenant must move out of the property and return the keys to the landlord by the agreed-upon date. Failure to vacate the premises could result in the landlord pursuing legal action against the signatory of the good-guy guarantee to recover unpaid rent or other expenses.

4. The signatory of the good-guy is released from liability: If the tenant has complied with all the terms of the good-guy guarantee, the landlord can no longer hold the signatory liable for damages, including the tenant's unpaid rent for the remaining term of the original lease.

It's always a good idea to review the terms of your lease carefully and consult with a real estate attorney. It could be the best money you have ever spent. 

The short answer is yes - the company is still on the hook. 

The company itself is not a party to the good-guy guarantee, and its' liability under the lease remains in effect regardless of anything that transpires with the GGG. 

Many people misunderstand this fundamental point: A good-guy guarantee is not a lease cancellation clause that allows the company to terminate an unfavorable lease and move to another office. The company will remain liable for unpaid rent even if the good-guy guarantee is exercised. Furthermore, the company will likely forfeit its security deposit, and the landlord could still take legal action against the company to recoup the unpaid rent.

If the company has dissolved and ceased operations, the landlord will have trouble collecting. But if the company has simply set up operations in another location, it will likely find itself in court. 

If you have reservations about signing a good-guy guarantee, you might negotiate with the landlord to find an alternative solution. Most often, a tenant will propose a larger security deposit in lieu of a good-guy guarantee. 

It's important to remember that opting not to sign a good-guy guarantee could impact your ability to secure the space you want.

In summary, a good-guy guarantee is a way to minimize the landlord's risk in a commercial lease. By gaining additional leverage, the landlord can "motivate" the principal of a floundering company to vacate an office space promptly. Or else.