The Good Guy Guarantee- The Tenant Escape Clause
A “Good Guy Guarantee” is very simple. It is a very limited, personal guarantee. It says, in essence, that in the event that the tenant has to break the lease, the tenant will notify the landlord, pay their rent up until the date they vacate the space, vacate the space and return the keys. Each guarantee is a bit different about the length of time for this notice, but the norm might be considered about 4 months. If, and only if the tenant does not abide by this guarantee, the signatory will be held personally responsible. In this respect, the “Good Guy Guarantee” is a form of a limited personal guarantee. When the principal of a firm hears the words “personal guarantee,” this often scares them off. The truth is that once you realize what this guarantee is all about, it’s not something to be afraid of. In fact, it enables a tenant to sign a longer lease, always more preferable, but with a built in escape clause. It gives the tenant the best of both worlds. For the landlord, this incentive helps avoid lengthy court battles with a tenant who is staying in a space without paying rent.
The guarantee puts a principal on the hook for unpaid rent, but if there’s nothing owed when the tenant leaves, the principal is free and clear and does not need to pay a penalty. All future obligations are laid on the tenant corporate entity which, if the tenant is going out of business, likely has no assets. The purpose of the good-guy provision is to provide an incentive for a tenant to leave the space instead of holding on and forcing the landlords to seek an eviction. It provides an exit strategy that works for both sides
