Commercial Leasing & Ground Leasing

Real Estate partner, Dena Cohen, discusses the "good guy" guarantee and how this lease provision can help office owners fill vacant spaces in Commercial Property Executive.

The office leasing market changed its trajectory dramatically since the onset of the COVID-19 pandemic. Vacancy rates quickly accelerated, placing downward pressure on rents. That pressure remains as the future of remote work trends and the role of the office remain uncertain. As a result, landlords have become more flexible on concessions and terms as they seek to fill empty space.

What is not changing, however, is the landlord’s strong interest in securing rental obligations after making steep concessions for tenants light on credit and operating history. The only thing worse for a landlord than vacant space is space that is occupied by a non-performing tenant. To avoid this potential headache, landlords have traditionally looked to (among other security requirements) the so-called "good guy" guaranty.

A good guy is a personal guaranty of a tenant’s lease obligations through the date that the tenant returns the space to the landlord even if that date is before the end of the lease term.

The need for the good guy guaranty is especially strong in cities like New York, where a “bad guy” tenant can take advantage of crowded court calendars that delay eviction proceedings during which time it occupies the space rent-free. Even if the landlord ultimately obtains possession of the space and a judgment against the tenant for unpaid rent, by then the tenant may have few or no assets, and the landlord has lost valuable time and rent in reletting the space to another tenant.

As a result, many landlords insist that tenants lacking sufficient assets and credit (and even sometimes those possessing those resources), provide someone to stand behind the tenant’s lease obligations at least until the space is returned to the landlord. If the guarantor is a "good guy," that person will—subject to certain conditions—be released from liability for obligations arising after the space is surrendered to the landlord provided the other conditions for release are satisfied.

Usually, the guarantor is a principal of the tenant but may be someone else who benefits from the lease. So how good of a guy does a "good guy" need to be? It varies.

Click here to read the full article and learn what you need to know about this lease provision.