In the late 1980’s and early 1990’s, Landlords in New York City were having a problem: tenants filing for bankruptcy were unable to pay their rent and refused to vacate their space. To protect their interests, Landlords began adding a “Good Guy Clause” to their lease. A Good Guy Clause is simply defined as a personal guaranty made by the owner of the company whose personal liability ends when the space is vacated. Therefore, if a company dissolves and the space is vacated, the owner is absolved of any further responsibility. However, the future obligation of the remainder of the lease remains with the company, but not the company owner, who guaranteed the lease.
As a tenant, it is important to know that every Good Guy Clause is different and understanding each aspect is critical to protect yourself and your company. For example, some Landlords require the tenant to provide advance notice typically several months in advance, before planning to vacate the premises. Others clauses require the tenant to compensate the Landlord for the tenant improvements provided for the tenant.
If the tenant wishes to terminate their lease in accordance with the Good Guy Clause, they typically must:
(a) Provide written notification.
(b) Vacate and surrender the premises to the Landlord in accordance with all terms required in the Good Guy Clause.
(c) Deliver the keys to the Landlord of the demised premises.
(d) Pay Landlord all rent and other compensation as provided in the Good Guy Clause.
It is critical to understand what is required in order to be released from your obligation. Whether the reason is due to an in ability to continue the business as an ongoing concern, desire to relocate, etc. the terms in the Good Guy Clause must be followed to ensure you are not violating the terms of the lease.
When negotiating the lease, you must first take into account your objective as the owner of the company. For example, if you own a small, fast growing company that you may plan on selling or exiting in the future, that must be taken into account when evaluating a Good Guy Clause. This is due to the nature of the guaranty that the owner of the company agrees to and continues even after exiting the company. It must be specified how the owner will be released from the personal guaranty. Please note, some Landlords will reduce the security deposit if the owner signs a Good Guy Clause. Always have a real estate attorney review the clause. There are GOOD Guy Clauses and BAD Good Guy Clauses, caution must be exercised.
