A Good-Guy Guarantee with a Notice Provision is No Longer a Good-Guy Guarantee!

There has always been a lot of confusion surrounding the concept of a limited personal guarantee, more commonly known as a “good guy” guarantee.  [See our 1/1/13 Post: Q. What is a “good guy” guarantee http://www.officeleasecenter.com/articles/q-what-is-a-good-guy-guarantee.html]

Part of the confusion is that tenants misinterpret the GGG as either 1) a full personal guarantee for the lease obligation (which it’s not) or 2) a cancellation option (which it’s also not).  

To reiterate, a “good guy” guarantee is a personal guarantee of the portion of the lease spent in occupancy of the space.  In concept, once the tenant vacates the space, the liability dissolves, however, the landlord retains recourse for the remaining obligation against the corporate entity on the lease.

The reason we reference a good guy guarantee “conceptually” is because every landlord agrees on the conceptual definition.  The problems arise in documentation where the guarantee language differs from one landlord to another, one deal to another, one document to another.  

At least this was the case until recently….Now we are seeing draft good guy guarantees with notice provisions of anywhere from three to six months.  What this means is that the tenant is required to notice the landlord (and pay several months rent) before relinquishing possession and dissolving the personal liability.

This change creates several problems:

  1. - The conceptual definition has been cast out the window;
  2. - Tenants are being penalized by several more monthly payments;
  3. - Worst of all, tenants are being asked to predict (and prepare for) their firm’s own mortality.

We are not advocates of creating longer lease language or negotiating terms that are outside of an agreed-upon term sheet, so we have become insistent that a good guy guarantee with a notice provision is no longer a good guy guarantee and should be called something entirely different.

Now you know and can help us educate others and fight the cause!