The Good Guy Guaranty: Should You Use One in Your Commercial Lease?
If you are a landlord or a tenant in a commercial lease, you may want to consider something that’s becoming more popular in the South, and which is a little more common with leases in the North: The Good Guy Guaranty. This kind of guaranty can be a win-win for landlord and tenant, if worded correctly.
What is a Personal Guaranty?
First, some basics: Let’s assume that your business is leasing out property. Normally, because of corporate protections, if the lease is broken, the landlord can only collect moneys due under the rent (that is, the damages from breaching the lease) from the tenant, the company, assuming the company is the tenant in the terms of the lease.
But a personal guaranty says that if the company can’t or won’t pay or fulfill the lease terms, then the individual signing the guaranty can be forced to pay the damages the company owes to the landlord. This allows the landlord to go after the tenant’s own personal property, or to get a judgment against the tenant, personally, for the damages caused by the tenant’s company’s breach.
What is a Good Guy Guaranty?
The good guy guaranty (GGG) is a kind of modified personal guaranty. What the GGG says is that:
- If the tenant terminates the lease early, but gives appropriate written advance notice of the intent to terminate, and
- If the property is surrendered in good condition (or any condition specified in the lease), and
- If the rent is current at the time of the tenant’s early termination
Then under these circumstances, the landlord could not seek damages against the guarantor. This works for both parties in the following ways:
The landlord gets some security knowing that if the tenant does break the lease, the landlord will at least have time to advertise the property, and find another tenant. The landlord also can be secure that the property will not have to be fixed, or that major repairs will need to be made-it is immediately in condition where it can be re-rented to another tenant. Additionally, if the tenant is behind on rent, there is an incentive for the tenant to get current with all back owed payments.
The GGG also can avoid litigation over a breach of lease, which can result when property is handed over in poor condition.
Additionally, the GGG only protects the guarantor. The Landlord is still free to sue and collect against the (presumably corporate) tenant, so there is still a pocket (the corporate tenant) for the landlord to go after.
The tenant gets the security of knowing that if things go sour, and the tenant cannot make lease payments, or the tenant realizes financial troubles, the tenant can be sued, but at least the individual owner, manager, or whoever is guarantying the lease, will not put his or her personal assets at risk.
Need help writing or negotiating a lease? Do you have a possible dispute in a lease matter? Consult with our West Palm Beach commercial litigation attorneys to discover your options. Let our lawyers at Pike & Lustig, LLP help you. Call us at 561-291-8298 to get a consultation.