In most commercial lease agreements, the landlord wants an individual to sign a personal guarantee, which will in theory protect the landlord if the tenant defaults. Should the tenant default in the payment of rent, or for any other reason, it gives the landlord the option to pursue damages from the tenant, as well as the personal guarantor. A way to limit the scope of the personal guarantee is by including a Good Guy Clause.
A Good Guy Clause states that if a tenant defaults for any reason, the individual that signs the personal guarantee is responsible for the rent due and payable during the period between the default date and the date that the property is surrendered/vacated by the tenant. If the tenant is facing financial issues and cannot pay the rent, and, rather than continuing to occupy the premises without paying rent, it vacates and surrenders the premises to the landlord, the personal guarantor will not be liable for any damages past the surrender date.
The purpose of the Good Guy Clause is to give the landlord an additional layer of security and can limit costs for both the landlord and the tenant/personal guarantor. For the landlord, it could help avoid the eviction process, which can be costly, time consuming, and drawn out for several months. Knowing that a personal guarantor could be facing continuing damages, that could be limited by the tenant vacating the premises, provides an incentive to the tenant to vacate rather than drag it out. It limits the exposure of the personal guarantor.
It is common for a landlord to require that a notice period be included within a Good Guy Clause. A period of three to twelve months is common. With a notice provision, the tenant will be required to give the landlord notice within whatever period of time is agreed upon that it will be vacating the premises by a date certain. The notice requirement gives the landlord time to find a new tenant and prepare for the surrender by the current tenant.
Common language that can be found in a Good Guy Clause includes:
- The tenant must give notification to the landlord that they will be vacating the premises within a certain period of time;
- Tenant must deliver the keys to the premises to the landlord or managing agent and surrender the premises in “broom clean” condition, free of all subleases and licensees; and
- Tenant must be current with all amounts due and owing under the lease.
The Good Guy Clause can be beneficial to both the landlord and the tenant/personal guarantor and if the tenant’s business fails, it could be the most important provision in the lease agreement for the personal guarantor. Therefore, if you are negotiating a commercial lease agreement as a landlord or a tenant, it is always wise to retain an attorney experienced in negotiating lease agreements to represent your interests.
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.
