Ezratty, Ezratty & Levine LLP
New York Guarantees (“Good Guy Clauses”) Attorneys
Around New York City and Long Island, many commercial leasehold agreements contain limited guarantees or possibly early termination provisions that are commonly referred to as “Good Guy Clauses.” While the specific provisions of Good Guy Clauses vary from lease to lease, the general goal of such a provision is to protect both tenant and landlord in the event that a tenant becomes unable to pay rent (or otherwise complete the term of a written leasehold agreement).
In a typical Good Guy Clause, a tenant can terminate a lease early by providing the landlord with advance notice. The length of notice is specified in the written lease agreement, and the Good Guy Clause itself —30, 60, 90, and 120 days are typical notice periods. As long as the premises are clean and vacant and there are no defaults under the terms of the lease, the landlord agrees to release the tenant and/or guarantor from liability for rents remaining under the lease contract. This saves the landlord the time and expense of eviction proceedings. It also allows the landlord to accelerate the inevitable process of finding a new tenant and maintain a profitable occupancy of the premises.
Good Guy Clauses and personal guarantees can be tailored to meet the unique needs of a particular landlord, tenant, or property. Many considerations can affect the application of a guarantee.
Notice Requirements: How much notice the tenant/guarantor must give a landlord before effectively availing himself of a Good Guy Clause is typically negotiated in advance. The landlord should carefully consider how much time she will realistically need to rent the premises to another tenant. The length of lease agreement will also affect the amount of notice that should reasonably be required. In general, longer commercial leases may require longer notice periods, because it is more difficult to secure an appropriate commercial tenant for specialized retail or office premises. Many commercial leases require the passage of a minimum amount of time before a Good Guy Clause or guaranty takes effect. Typically, this time period is one year.
Lump Sum Buyout: Landlords can also mitigate their damages by liquidating them. This means that a landlord and tenant negotiate an amount of money the tenant will pay to terminate the lease early. This amount of money serves to both activate the Good Guy Clause and satisfy the tenant’s remaining obligations under the lease agreement. The amount of the buyout can be a fixed sum, or subject to a vesting schedule that is dependent upon the balance of time remaining under the lease. The amount of the buyout is negotiated before executing the lease, or is contingent on various circumstances identified by the landlord or tenant. A landlord can also use a buyout provision to take back space in both residential and commercial settings.
Security Deposit Provisions: Before executing any Good Guy Clause, the landlord and tenant should agree in advance what will happen to the tenant’s security deposit (or advance rent paid, or any other security held by the landlord) in the event of an early termination. Most landlords will want to apply the security deposit to the lump sum buyout or remaining rent due under the lease. The deposit can be applied in whole or in part to offset the landlord’s losses…or not at all. It is completely at the discretion of the landlord and tenant. Both parties should, therefore, be very clear about both their needs and intentions with respect to the security deposit during the negotiation of a Good Guy Clause and its provisions. This can save significant time, money, and expense later in the tenancy.
Condition of the Premises: This provision will generally serve the interests of a landlord by mitigating the costs of restoring the premises to a rentable condition. Condition terms can specify the level of cleanliness required (including any professional cleaning services for which the landlord wishes the tenant to pay), what will happen to any abandoned property, who is responsible for removing fixtures, and anything else the tenant must do to restore the premises to an acceptable condition for the next tenant. This term helps a landlord mitigate her damages by shortening the time of vacancy and ensuring continued, profitable occupancy of the leased property.
Overall Scope of Liability: The tenant’s/guarantor’s liability under a Good Guy Clause may be limited to rent payments (or a lump sum buyout), but it can also include a landlord’s taxes and operating expenses (or reimbursement for these expenses after they are incurred). It can include marketing or brokerage fees to find a new tenant for the property. It can include performance obligations for the tenant (such as cleaning or removing fixtures). It can require the tenant to help secure a new occupant for the leased premises. Almost any term can be negotiated to meet the needs of the parties.
Benefits of Good Guy Clauses for Commercial Tenants
Good Guy Clauses can be helpful for commercial tenants—especially for the individual business owners of new, untested companies that are not yet ready to commit to lengthy rental periods. Landlords should be sure that any commercial Good Guy Clause specifies who is liable for payments and performance due under the lease. A business that goes bankrupt or ceases corporate existence may be able to disclaim liability. Landlords are wise to include a personal guarantor for corporate obligations.
Cooperation for Better Results
Good Guy Clauses evolved as a compromise between the needs of landlords and tenants within the tenancy relationship. They are an excellent example of how both parties can negotiate through a difficult situation to mitigate the damage that would otherwise occur from a breach of contract. The attorneys at Ezratty, Ezratty and Levine have decades of experience in managing landlord and tenant disputes. We believe in crafting personalized, creative solutions that best meet the needs of all parties. This minimizes the cost and inconvenience of a wide variety of common landlord problems. Contact us online or call our office at (516) 747-5566 to learn how we can craft the best solution for you.