Tuesday, December 4, 2018

Commercial Lease Basics: Negotiate a Good Guy Clause For Your New York Start-Up

I wrote this back in June of 2016 when I was working on a commercial litigation matter involving a breach of lease by an international tenant, and was wading through the nuances of  so-called "good guy" clauses.

New York start-up businesses can negotiate a Good Guy Clause into commercial leases in New York to gain flexibility in terminating leases should things go wrong.

A Good Guy Clause is commonly used in New York City as a personal guaranty within a commercial lease.  In exchange for a guarantee from the tenant or an affiliate of the tenant to fulfill all obligations under the lease, the commercial landlord agrees to allow the New York tenant to terminate the lease early so long as all rent has been paid in full and the tenant gives sufficient notice.  The premises must be delivered "broom-clean" with all possessions and trash removed. 

Good Guy Clauses in New York may protect both the commercial landlord and tenant.  These clauses protect commercial landlords in New York City because these clauses avoid landlord-tenant litigation and, if there is a party other than the tenant offering the guarantee - the individual offers additional assurance that the rent will be paid.  These Good Guy Clauses, also, may protect tenants in New York by giving them an option to terminate a lease in the event that the tenant's business is unprofitable.  This is why a Good Guy Clause is so important to New York business start-ups.

If you are a New York start-up negotiating a lease for commercial space, here are some things to consider before signing your commercial lease:

1. With a personal guaranty comes personal responsibility.  That means you will be responsible personally for any shortfall in payments should you wish to terminate the lease.  If there is no personal guaranty, then all you lose is your business's security deposit.  

2. Good Guy Clauses can include a clause where you waive your right to any return of your security deposit.  This is NOT standard language within the clause.  Look out for it. 

3. Some landlords seek to make Good Guy Clauses conditional upon a minimum time of continued occupancy.  This kind of language negates the purpose of a Good Guy Clause, as most early terminations happen within the first few years of the lease term.  

The lesson here is simple: before negotiating a commercial lease with a New York commercial landlord, consider these people - and definitely hire an experienced New York attorney to guide you through the process.

Gene Berardelli is known as a street-smart attorney with significant experience in civil and commercial litigation, a New York Election Law expert, a host of an award winning conservative talk radio show broadcast on terrestrial and internet radio stations, and the uncle to the greatest nephew in the history of the world.

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