What is a “good guy” guarantee?
A “good guy” guarantee is a limited personal guarantee for a lease obligation.
Conceptually, a “good guy” guarantee applies only to the time spent in occupancy prior to a lease default and the subsequent return of the leased premises to the landlord , at which point the personal liability dissolves. If any delinquent rent is owed, the landlord may pursue the individual guarantor for that rent. However, the remainder of the lease obligation is not subject to the limited guarantee and the landlord can only pursue the legal entity on the lease.
For this reason, the “good guy” guarantee is often mistaken for a cancellation clause. In the event a tenant has signed a limited guaranty, doesn’t owe back rent and decides to breaks the lease, the landlord does have recourse beyond retaining the security deposit, namely, taking the company or entity to court for the entire remaining obligation. Conversely, If a tenant has a true cancellation option it will appear in the lease as a cancellation or termination clause.
Unfortunately, it has been our experience that every landlord’s interpretation and documentation of a personal guarantee is different. Many landlords attempt to add more stringent conditions of personal liability to a “good guy” clause by adding notice provisions or broad definitions of rent and/or default.
In reality, a “good guy” guarantee is an additional form of lease securitization beyond the security deposit. Many landlords will not request the guarantee at the beginning of negotiations and will try to introduce it at the issuance of draft lease documents, when the tenant has committed to the property.
We do not recommend that tenants sign personal guarantees for office leases and for this reason, each of our proposals contains bold language to that effect, stating that a personal guarantee will not be provided.
In lieu of signing a personal guarantee, tenants should offer one or more additional month’s rent as a security deposit for the lease. There are several good reasons for doing this, including: 1) eliminating personal liability, 2) security deposits are often in the form of bank letters of credit and funds do not leave the tenant’s bank account, and 3) the additional security deposit may be reduced or “burned down” over the lease term.