What Personal Guarantors Should Know About the ‘Good Guy Clause’

Hand signing a lease to represent a good guy clauseIf you are a business owner in the New York commercial leasing space you almost certainly will have signed what’s known as a “good guy clause,” guaranteeing rent payment. In essence, the clause states the individual guarantor will be a “good guy” and personally guarantee the terms of the lease, i.e. paying rent and any additional charges as they become due. With the requisite notice and surrender of the premises, the guarantor’s liability for the commercial rent, charges, etc., terminates. The period guaranteed will not continue past vacating or surrendering the premises.

A good guy clause can minimize or help you escape personal liability for a company that can no longer afford to pay rent. The guarantee is almost always limited to most fees and charges prior to vacating and surrendering the premises to the landlord. It provides the impetus for many to get up and leave when payment is no longer possible. Overstaying your welcome will merely increase liability for the personal guarantor. If you are not concerned about the prospect of personal liability for a debt or consider yourself judgment-proof, the guarantee will not motivate you to leave.

Costs Related to Signing a ‘Good Guy Clause’

You are “charged” with reading what you signed. The guarantee will specify what you agree to be personally liable for. In addition to rent, unpaid charges, and any performance that might have been required by the commercial tenant, you will most likely agree to pay the cost of collection including reasonable attorneys’ fees.

As a New York “good guy” guarantor, you can be pursued in civil litigation for a New York debt collection action. The landlord will need to prove they are entitled to recover the unpaid rent and that they complied with notices and the portion that you, the guarantor, agreed to be personally liable for.

If successful, the landlord will recover a judgment against you. Once entered, the landlord or others can enforce the judgment against your assets.

Reducing Your Liability

There may be mitigating factors that will reduce or allow you to avoid liability. Factors may include additional clauses in the lease that allow you to escape or reduce liability, the landlord’s failure to prove their case in whole or in part, an overreaching guarantee, and more.

If you’re being sued because you signed a personal guarantee, contact Frank, Frank, Goldstein & Nager for a free consultation. We can help you determine your options and likelihood of success when it comes to commercial debt defense.