A commercial landlord will want protections in the event that the tenant fails to pay the rent or otherwise breaches the lease. A landlord can obtain such protection by reviewing a tenant’s financials and requiring a security deposit in an amount that provides adequate assurances.
Another way a landlord can get protection is to request a guaranty from another individual or entity that is not the tenant under the lease. Generally, there are three types of guaranties available under a commercial lease:
- Full payment and performance
- Full payment only (monetary only and no lease performance obligations)
- “Good Guy” Guaranty, commonly used in the New York market (sometimes also referred to as a “Good Gal” Guaranty)
The person who signs a guaranty is called the Guarantor. A guarantor will generally not want to take on such risk unless it has a substantial ownership or beneficial interest in the tenant. An example would be a parent company providing a guaranty for its subsidiary company or a barber signing a barbershop lease in his/her tenant legal entity but the hairdresser provides a personal guaranty by Mr. Steve Barber.
A lease guaranty is not an agreement that should be entered into without careful review. The landlord will state that the guaranty is a condition to the lease and an inducement to the landlord.
A “Good Guy” Guaranty limits the guarantor’s obligations under the lease and draws a line in the sand on the Surrender Date. Returning the keys to landlord is often used as short hand for the surrender date, however, it may include other conditions.
In sum, the surrender date can be defined as the date the tenant hands over the keys and possession to the landlord, vacant, broom-clean, with all occupants (i.e. tenants and subtenants), vacated with the premises in the condition required under the lease and all sums paid through the surrender date.
A “Good Guy” Guaranty will be signed simultaneously with the lease and is often attached to the lease as an exhibit. It will reference the parties to the lease and the date of the lease. The guarantor will guarantee to the landlord the full and prompt performance of all the terms agreed to by the tenant under the lease (as may be amended) and the full and prompt payment of all rent and other charges payable by the tenant under the lease until the Surrender Date.
The guarantor agrees to make right all the tenant’s liabilities is he or she fails to do so. Some examples of liabilities are unpaid rent, tenant bankruptcy or damages caused to the landlord by a tenant “hold-over.” A tenant hold over is when a tenant stays in possession of the space after the expiration date of the lease and causes the landlord to lose the next tenant is had signed up and the legal fees associated with such hold over.
In sum, a “Good Guy” Guaranty is a compromise to requiring a full guranty in that the Good Guy Gurantee reduces the guarantor’s exposure to payment and performance duties that arise on or before the Surrender Date.