The successful signing of a commercial lease is a moment to be celebrated, as it implies the landlord and tenant have managed to negotiate a deal that is favorable to both parties. As part of these commercial lease negotiations, a landlord may ask a tenant to sign what is called a “good guy guarantee.” Commercial lease companies advise that on the surface, this appears to be a reasonable request, showing good faith on the part of the tenant. Yet the interpretation of this guarantee is frequently unclear, maybe leaving a business owner at risk. It is important to understand this guarantee and its impact before signing a commercial office lease.
What Is A Good Guy Guarantee?
A good guy guarantee is a limited personal guarantee made by a business owner and requested by a landlord during commercial lease negotiations. It states that if the tenant stops paying rent and fails to vacate the space, the landlord can pursue the signer personally for money due. It means that if a business does not pay its rent for any reason, the landlord can seek compensation for rent and eviction costs from the person who signed the lease in lieu of the represented business. Avoiding this action simply requires a business owner to vacate a commercially leased space if the business defaults on the lease. Unfortunately, because there are many different interpretations of what a good guy guarantee involves, things may not be quite so simple.
Need For Caution In Signing This Guarantee
Although there is no real reason not to sign a good guy guarantee, as it is a fair document when fairly used; however, a landlord may not clearly understand its use or may unfairly use one against a tenant. Following are some of the ways commercial lease companies say these guarantees can be misused.
- Not A Cancellation Clause - A cancellation clause in a commercial office lease states how a landlord may proceed when a tenant prematurely breaks a lease. Any legal action against the tenant is directed at the business itself in this case. A good guy guarantee takes effect when a tenant fails to pay and also fails to vacate, which are technically different circumstances. Some landlords attempt to view these circumstances as one in the same, creating problems for a tenant in need of legally breaking their lease.
- Unreasonable Vacate Notice Demands - Another way a landlord may misuse the good guy guarantee is to require three to six months notice prior to vacating a space, or face penalties. When a business needs to vacate or face personal liability, there is seldom enough time to give that kind of notice. This gives a landlord the legal right to either sue the signer, or demand the terms of the lease, for failure to provide due notice.
- Sublet Space and Sale of Business - These are two other circumstances where landlords are known to take advantage of a good guy guarantee. These areas must be carefully negotiated in a commercial office lease before signing. In either of these situations, the signer is at risk with a signed guarantee should they not vacate any sublet space as well, which affects a business that has been sold. Regardless of whoever owns the business, the name that is on the guarantee is responsible for any default, even after an owner sells the business to someone else.
When included as part of a commercial lease, a good guy guarantee is not necessarily a bad thing. When properly worded, this guarantee provides reasonable protection to a landlord against an uncooperative tenant. As any experienced commercial lease company knows, it is essential for a tenant who is asked to sign such a guarantee to go over the document very carefully during commercial lease negotiations. This is the best way to avoid any loopholes that could leave a business owner personally liable under the wrong circumstances!