The GGC motivates tenants to vacate and surrender possession of the subject premises to the landlord thereby avoiding costly landlord-tenant litigation and allowing the landlord to quickly find a replacement tenant. Typically, the GGC contains conditions that must be met in order for the clause to apply. For example, turning over keys by a certain date, broom clean, and all rent/additional rent or charges paid up to the date of vacating.
Moreover, another condition to a GGC is the notice requirement. Most often, the GGC will require that the tenant provide advance notice of surrender. As all GGC are different, most GGC require anywhere from three to 18 months of advance notice to the landlord. This advance notice provides the landlord with time to find and procure a new tenant.
Negotiating a Good Guy Clause
In negotiating a GGC provision, it is important to consider the security deposit. In most commercial leases, a tenant will be required to advance several months rent as security deposit. Determining what happens to the security deposit in circumstances where a GGC is invoked is important.
Additionally, some GGC provisions require the tenant to pay a tail or lump-sum payment at the time of surrender. It is important to determine this amount and negotiate terms that work for all parties.
Furthermore, when negotiating a GGC, it can be helpful to include a provision that deals with the selling of the business. Many tenants or business owners do not consider their exit strategy, and it may be helpful to insert language in a GGC that allows a tenant to transfer the GGC to another individual in the event the business is sold.
Important factors and questions to consider when drafting a GGC include:
- Will the tenant or guarantor be released from the lease upon death, incapacity, retirement, and/or withdraw from the entity that has leased the premises;
- Reimbursement of landlord fees and costs subject to a “reasonableness” standard;
- Releasing or indemnifying a guarantor from liability upon landlord's consent to any sublease or assignment; and
- Surrender mechanisms (mentioned above – return of all keys, broom clean, etc.).
Remember, GGC are complex, therefore, it is important to discuss GGC early in the business discussion stages.
The information above is intended to provide limited information only and is not legal advice. The laws relating to Good Guy Clauses in New York are complex. If you are a party to a matter concerning a lease or eviction and otherwise need further guidance in this or a related area of law, Singh & Rani, LLP can assist you.
3. F N.Y. Prac, Landlord and Tenant Practice in New York § 4:237
New York Practice Series - Landlord and Tenant Practice in New York January 2018 Update Daniel Finkelstein, Lucas A. Ferrara, Chapter 4. Rental Agreements, IV. Standard Provisions in Written Rental Agreements