Is a “Good Guy Guaranty” (GGG) Still Worth It?

By R&E’s Stephen Millington

What Is a “Good Guy Guaranty” (GGG)?

 A “Good Guy Guaranty” is a provision in the guaranty of a commercial lease agreement, particularly prevalent in New York City, designed to function as a sort of "pre-nuptial agreement" in the context of a commercial lease agreement. Properly structured, a GGG can offer a balanced approach, providing landlords with assurance against non-paying tenants remaining in possession, while allowing tenants a defined exit strategy if certain conditions are met.

The Standard Terms of a GGG

Broadly speaking, these conditions include:

• The tenant must provide advance notice of their intent to vacate (usually six months).
• The tenant must be current on rent through the expiration of the six-month notice period and not in default at the time of vacating and upon notifying the landlord of its intent to vacate.
• The premises must be returned by the specified date and in the condition required by the lease.

If all conditions are satisfied, the guarantor’s liability ends when the tenant surrenders the space. However, the tenant entity, often a “shell” entity, remains liable for obligations outlined in the lease agreement, and the landlord will likely use the security deposit to cover any damages incurred under the lease.

Why GGGs Are Evolving Post-Covid

The Covid-19 pandemic and recent macroeconomic uncertainties have made landlords more cautious. As a result, many are tightening GGG provisions, which typically now include:

• Additional collateral requirements.
• Longer notice periods.
• Lengthy “black-out” periods, during which the GGG cannot be exercised (for instance, not before the third anniversary of the rent commencement date on a five-year term).
• Provisions allowing for the “clawback” of unamortized broker’s fees, construction allowances, and any rent concessions offered to the tenant during their build-out.

The Rise of Tenant Cancellation Options

Another trend, primarily driven by tenants, is the introduction of a “Tenant’s Cancellation Option” directly in the lease. This option serves a similar purpose to a GGG but may involve the landlord requesting a larger security deposit and requiring payment of a “break fee.”

Recent Legal Rulings You Should Know

Recent legal developments have also added complexity to GGG provisions. For instance, New York courts have ruled that:

(i) A GGG may be rendered ineffective if the lease requires landlord consent for early surrender, and such consent is not obtained; and

(ii) If the holdover rent isn’t specifically stated in the guaranty as an obligation of the guarantor, then a landlord will not be able to recover holdover rent from a guarantor.

These rulings underscore the need for well-drafted GGG provisions that are clear and not overridden by other lease terms. This is particularly crucial as we look ahead to the remainder of 2025, where market volatility and evolving lease frameworks will continue to alter how landlords and tenants approach GGG provisions.

Drafting Challenges: The Definition of 'Default'

Below are a few examples of critical clauses that are now more heavily negotiated in GGGs than ever before, and as a consequence, pragmatic lawyering is of paramount importance.

• The definition of a tenant being “not in default” is at the crux of a GGG. If this definition is too narrowly defined to only “monetary default beyond notice and cure,” it could lead to situations where the tenant vacates, leaving the landlord with significant costs to “demo” the space, while the tenant entity holds minimal assets, and the guarantor is effectively released from responsibility.
• Conversely, from a tenant’s perspective, a broad definition could undermine the GGG’s effectiveness. For example, if a retail tenant in a shopping center is already closed for business and the space is “dark” for three months before the vacate date under the GGG, then this would be deemed a default under the usual form of retail lease in a shopping center. Typically, a sophisticated tenant’s attorney will request to carve out the “go-dark” and rent acceleration provisions from the definition of a default solely for purposes of the GGG.

Landlord vs. Tenant Perspectives

When negotiating a GGG, I ask landlord clients to articulate their vision of a favorable outcome should the tenant decide to vacate. Landlords typically want the opportunity to market the space without restrictions, retain the security deposit, and have coverage for any upfront concessions if a GGG is exercised during the initial lease term. More importantly, they want to ensure that the space is returned in a condition that allows for cost-efficient re-leasing.

 In contrast, in response to the same request, a tenant will say that if they do greater than ~95% of what they are supposed to do to exercise the GGG clause, then they can walk off into the sunset, and the landlord won’t chase them to the ends of the earth. In essence, tenants seek clarity on the precise steps required to invoke the GGG.

Why Early, Honest Conversations Matter

 Ultimately, attorneys must ensure that the GGG provisions align with both parties’ expectations. The difficulty here is that unraveling something when business isn’t going well in five years is even more of a challenge when the process for unraveling this transaction was negotiated at a time when the brokers, the lawyers, and the principals are all excited to sign the lease quickly, and all (maybe except for the lawyers) anticipate that the business will be wildly successful and that the lease agreement will sit in a drawer forever. Otherwise, they would not have entered into the lease agreement!

Are GGGs Still Worth It?

So, is a GGG still worth it? Yes, but the parties need to be practical and have difficult conversations very early in negotiating the deal, even if it seems like it might delay the execution of the lease or even kill the deal.

Founded in 1975, Rosenberg & Estis, P.C. is widely recognized as one of New York City’s pre-eminent real estate law firms. R&E provides full-service representation and advice in every aspect of real estate, from performing due diligence and evaluating financing, to handling joint ventures, acquisitions and leasing, construction and design team agreements, property tax exemptions and abatements, land use and zoning matters, Real Property Income & Expense (RPIE) filings, real estate tax certiorari, co-op and condo offering plan filings and board representation, distressed situations workouts, foreclosures and bankruptcies, trust and estate planning, as well as the litigations and negotiations which sometimes ensue when deal-making. R&E’s wealth of experience in New York real estate makes it the ideal thought partner for owners, developers, not-for-profit corporations, educational institutions, sponsors, equity investors and lenders in both real estate transactions and in all court venues.