• September 13, 2020

Key Takeaways: How Landlords Strengthen a Good Guy Guarantee

Key Takeaways: How Landlords Strengthen a Good Guy Guarantee

Top Examples of How Landlords Will Try to Strengthen a GGG & Tenant’s Counteractions

  1. Guaranty of not only Base Rent but Additional Rent
    • Tenant Action: Given that Additional Rent is defined broadly, tenants should attempt to limit its definitional scope within the GGG (e.g., to real estate tax escalations and sub-metered electric).
  2. Guaranty of Performance of Non-Monetary Covenants
    • Tenant Action: Try to delete this concept.
  3. GGG to remain in effect after a lease assignment
    • Tenant Action: As an “exit strategy” on behalf of tenants, negotiate language that the Guarantor is released from the GGG upon assignment if the assignee’s principals sign a “replacement GGG” or if the Assignee’s net worth is above a certain monetary threshold.
    • Landlord Counteraction: Consider adding a credit score standard (700 to 750) and a “no-default in the last 6 months” provision.
  4. As a landlord, insert language that the GGG termination rights can’t be exercised until (a) all tenant work commenced by Tenant has been completed and paid for, and landlord has received copies of full lien waivers evidencing same, (b) the 1st or 2nd year anniversary of the rent commencement date has passed, (c) landlord has been given 90 to 180 days prior written notice and (d) the space to be returned is “in the condition otherwise required under the lease.”
    • Tenant Action: As to the straight guaranty for the first lease year, attempt to delete it; as to Landlord’s notice requirement, try and reduce it to 60 to 90 days; and unless the removal and restoration clauses have been negotiated carefully, attempt to delete the “condition otherwise required under the lease” language.
  5. The full amount of S/D required under the lease must remain intact, and given that the S/D will be applied to cover landlord’s damages associated with the early space surrender, as to the S/D (i) it cannot be applied against any rent then due and owing and (ii) the tenant can (in the words of legendary Pirates broadcaster Bob Prince“… kiss that baby goodbye!”
  6. Insertions of provisions by a landlord for reimbursement by the Guarantor of landlord’s upfront costs incurred in entering into the lease of its unamortized costs (which in the prior example were initially $1,200,000), which in some guarantees may include reimbursement for the following items: brokerage commissions, free rent concessions, tenant improvement allowances, landlord’s work and legal and architectural costs.
    • Tenant Action: Have the reimbursement language toned down, deleted and/or subject to a “sunset” provision of 24 to 36 months (meaning it is no longer applicable after that time period).
  7. Landlord’s insertion that all principals having a 10% to 20% ownership interest or greater sign the GGG.
    • Tenant Action: If more than 1 guarantor, request that if one of them leaves the tenant’s business, as long as the remaining partner(s) agrees, the departing shareholder or member will be released from the GGG.

Terms of Use, Refund Policy & Privacy Policy