While a ‘good guy’ guarantee is a type of personal guarantee, meaning that a principal or officer of the firm that signs it is effectively providing a personal guarantee and therefore personal liability for the entire lease obligation, it is entirely conditional.  As long as sufficient notice is provided, the rent is current through that notice period, and the business vacates and leaves the space in an appropriate condition, the guarantee is effectively terminated. 

Designed mainly to reduce holdover and squatting risk for landlords, the good guy guarantee ensures that landlords are protected in the event a tenant cannot pay the rent for the remainder of the lease. Good guy guarantees are typically requested during lease negotiations following review of proposed Tenant Financials.  In some cases, offering a “good guy” guarantee can be a means of reducing the total amount of security deposit. 

While no one appreciates the notion of taking on any personal recourse, a ‘good guy’ is not an unusual ask in New York and is far more favorable to a traditional personal guarantee. In the event that the lease obligation becomes untenable or the business winds down, as long as you give the landlord notice, and leave the space in good condition, you only have to pay the rent up until you vacate the premises and the risk is limited to the security deposit. 

One main consideration that will be negotiated when signing a good guy guarantee is the notice period. While a three month notice period is common, landlords often try and negotiate for a longer notice period, and tenants try and negotiate for a shorter period. 

For example, a landlord may ask a tenant to give at least six months notice in the event that they must default on the lease. Should you agree to those conditions, it is important to keep in mind that you will be responsible for six months worth of rent, even if you only give four months notice. 

As a tenant, it is wise to give your landlord notice as soon as you have an idea that your business is not doing well. Not only is it helpful to your landlord, but it ensures that you will not be personally liable under any means.

In the event that a tenant’s business closes and they may have to default on the lease, they may choose to sublease the space to another tenant. This will allow them to collect rent payment from the subtenant to pay the lease, without breaching the lease contract. 

If you do decide to take this route, be aware that you will still be personally liable for the lease if the subtenant can no longer pay for the rent and will not vacate the premises. The last thing you want is to risk your personal assets because your subtenant is squatting in the space. 

One of the last things to consider when signing a good guy guarantee, or a personal guarantee of any kind, is who will be the principal of the lease. If your business is a venture shared with other people, it may not be the best decision to assume the position as principal.