A Good Guy Guarantee is a limited personal guarantee that, once signed, legally enables your landlord to pierce the corporate veil and legally go after you personally only in the event that you stop paying rent and refuse to vacate the space.
Say you are a tenant and your business fails. You vacate your office space and give it back to the landlord. This makes you a “good guy.” You have behaved yourself, the Landlord can re-let the space and if there are assets left in the corporation the Landlord is free to go after them. But so long as you are a “good guy” and vacate your space, the Landlord has no further recourse against you personally and cannot pierce the protection of the corporate veil.
However, if after a business failure, you stop paying rent and refuse to leave your space, therefore forcing your landlord to evict you (something that often takes a year or more), then you are a bad guy. Under the terms of the Good Guy Guarantee, the landlord can now go after you personally.
From a landlord’s perspective a Good Guy Guarantee is an insurance policy against the amount of time it can take to evict a tenant. This legal process can take over a year, and during that time, the landlord can’t rent the space or recoup any of its losses.
Hence, it’s common for landlords to require tenants to sign a Good Guy Guarantee. It is a mode of financial and legal protection for the landlord. It also makes staying in an unpaid space extremely unappealing to the tenant.
A Good Guy Guarantee is not a blanket personal guarantee. Instead, it should be looked at as a promise (with some teeth to it) that the tenant will return space to the landlord of the tenant’s business fails, enabling the landlord to find a new tenant to pay rent.
A Good Guy Guarantee isn’t necessarily onerous to the tenant. If worded properly, it’s a reasonable legal document. This being said, tenants should make sure that they check the wording of their Good Guy Guarantee with a figurative microscope. Often, landlords will add language that creates an additional liability for the tenant. A common tactic is for landlords to try and capture an additional 3-6 months of rent payment from the signatory of the Good Guy. They do this by wording the Good Guy Guarantee in a way that requires the tenant to give 3-6 months notice if they plan to vacate. As tenants are rarely able to provide such notice in a dire business situation, such an insertion works in favor of the landlord and against the tenant.
Two other scenarios to be particularly aware of are – one is if you sublet your rented space, and the other is if your company is sold. In the case of a sublet, should your sub-tenant decide to be a bad guy, and not vacate the space when the lease is up, the landlord is going to look to you, personally, until the sub-tenant is out. The same is true if your company is sold. Even if another entity or individual acquires your company over the course of your lease, your name is still on the Good Guy and as such it’s you are responsible should things go wrong.
Depending on the credit worthiness of a tenant, the state of the market, and the needs of the landlord, these clauses can be negotiated out or mitigated, so make sure you don’t just sign your name without making sure you are crystal clear what you are getting into.