What’s A Good Guy Guarantee And Should You Use One?
Landlord tenant relationships, especially business and commercial ones, are always difficult. There is a tenant, who signs a lease despite not knowing how business will go in the future, and thus, takes the risk of significant penalties or lawsuits if the lease needs to be broken.
On the other hand, there is the landlord, who understandably needs to be able to plan finances, which requires tenants who abide by the terms of their lease—that is, they don’t break the lease early.
To avoid commercial tenants from leaving early. Landlords often have leases with pretty harsh penalties, for the lease being broken. Often, this involves personal liability for the business owner, in the form of a personal guarantee. Many business owners, not willing to put up their personal or family assets, resist signing personal guarantees.
Good Guy Guarantee
But there may be another option, called the good guy guarantee. This is a type of guarantee that isn’t seen much in South Florida, but there is no legal reason why it cannot be used. It also can be a nice medium providing some protection to both sides.
The good guy guarantee goes like this:
- In the event that the tenant must terminate early, the tenant must give adequate prior notice. The lease can specify how long in advance that notice is, and the parties can negotiate that time period.
- When the tenant leaves the property pursuant to the early termination notice, the rent must be current and the property in good condition—once again, the lease can specific any particular conditions that must be met
So long as these conditions are met, the tenant can leave the property without penalty.
What’s the Benefit?
The benefit to the landlord in this situation is that a tenant who is struggling, and knows it will or may have to end a lease early has an incentive to stay current on the lease. The landlord does not have to worry about a tenant falling behind, and then leaving the property.
The landlord also gets advance notice of the termination. That means that the landlord has gotten paid the rents that have become due, but also has enough advance notice, that the landlord can relet the property.
And, since another condition is delivering the property in good condition, the landlord also has the assurance that it won’t have to spend much time or money getting the property in condition to be re-rented.
Limited Use Option
You can even use the good guy guarantee, just against the guarantor. In other words, the landlord can retain the right to sue the business, in full, for terminating the lease. It’s only the personal guarantor’s liability that has been discharged through compliance with the good guy guarantee.
Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954 440-3993 today for questions about contracts or agreements that affect your business.