What is the ‘Good Guy Guarantee’ in New York City Commercial Real Estate?

What is the ‘Good Guy Guarantee’ in New York City Commercial Real Estate?

The Good Guy Guarantee, or Good Guy Clause, is a lease clause especially popular in New York City commercial real estate. It helps take some of the risk off of the backs of both the tenant and the landlord, in case something unpredictable happens to the business leasing the office space that deems it unable to continue operations. In a way, it’s an incentive for a better collaboration between the landlord and the tenant.

How does the Good Guy Clause work?

In essence, the Good Guy Guarantee is a legal promise that if, for whatever reason, the tenant becomes unable to continue paying rent for the remaining lease term, they will give the landlord an advanced notification (typically three months notice, but it can go up to six months), pay all rental fees until the said departure date, and vacate the place, leaving it in broom-swept condition.

Hypothetically speaking, if the tenant’s business fails after five years but has signed a 10-year lease term with the landlord, they can use the clause to break out of the lease agreement without having the landlord holding them legally responsible for the remaining lease payments. 

While this clause seems to favor the tenant, it is a safety measure for the landlord, too: they don’t have to charge additional upfront fees, but mainly they don’t have to stress out about a possible eviction. Evicting a tenant is a lengthy process in New York City, which can take one year or longer – all the while, the landlord isn’t receiving any rental income on the space. 

Why the GG clause exists in the first place

The Good Guy Guarantee dates back to the late 1990s, when the real estate market was steaming hot. Back then, tech companies had consistent funding and were in need of significant office space. So they leased quite a lot of space. But then, the bubble burst in early 2000, and many of these companies went bankrupt, unable to pay for the respective units.

Many chose to sublease, others refused to vacate the spaces, hoping to recover but without paying anything to the landlord, aware of the lengthy eviction process in the city. Thus, landlords created the Good Guy Guarantee to encourage tenants to willingly vacate the leased space, avoiding potentially costly and lengthy lawsuits, and to allow the landlord to re-lease the space faster.   

Things to consider when negotiating a GG clause

When negotiating a lease agreement, make sure to read the fine print, as some landlords might slip telling you about the GG clause. Keep in mind that, just like any part of the lease agreement, this clause is also negotiable. Your credit history, offered lease amount and the market you’re operating in are just some factors that can impact a landlord’s decision to include a Good Guy Guarantee or not.

It’s also important to know that the GGG remains in effect even if the tenant sublets the space or assigns its lease to another party. In other words, the original tenant is still responsible for lease payments if the sublessee or assignee leaves before the original lease ends. Moreover, if the tenant sells the business and a new lease isn’t drawn up, the GGG remains in effect with the same potential risks attached to the original tenant.  

Learn more about the Good Guy Guarantee in NYC from Metro Manhattan Principal Broker Alan Rosinsky:

Are you thinking of setting up your business in a convenient location in Manhattan, and are looking to lease space in a modern building offering state-of-the-art amenities? Then reach out to us and we will show you worthwhile space situated right in the heart of New York City. To learn about available office space, call Metro Manhattan Office Space at (212) 447-5403 or email us at info@metro-manhattan.com.