Starting a company is a notoriously risky endeavor. Sometimes, companies fail, stop paying their rent, and refuse to leave their offices. Evictions take a lot of time and work for landlords, especially in a place like New York City. This is why, in NYC, many landlords require what´s called a Good Guy Clause(GGC) in their office space leases.
What is a Good Guy Clause?
A GGC holds a tenant (the Good Guy or Gal) personally responsible for making rent, even after their company has failed. However, if the tenant gives the landlord notice (usually within 30-180 days), they can be released of this responsibility. This depends, of course, on them having paid all the rent up to the surrender date and leaving the office neat and tidy. Doing those would make them a “good guy”.
Why use a Good Guy Clause?
The GGC creates an incentive for a landlord and tenant to cooperate. The tenant is protected from being stuck in a lease after their company goes bankrupt. The landlord is protected from having a bankrupt company camping out in their office not paying rent. It also allows for the tenant to get a smaller security deposit.
GGCs are very common in NYC. The Good Guy (an actual person from the company) will usually have their credit checked by the landlord to make sure they can/will pay in the event their company fails.
Always Double Check Your Lease
If you are signing a lease in NYC, look for the GGC. Some landlords will slip it in without telling you. Be careful of GGCs where you need to give the landlord extremely advanced notice. It’s a bit excessive for the landlord to ask for 6 months in advance. It’s hard to know this far out if the company will make it or not and you’ll be responsible for the rent either way.
Guest Writer for 42Floors