Let's say that you are entering into a lease for a property in Chicago with another business, and you want to ensure that you get paid. Specifically, you want to make sure that if there is a default, you will have someone or something to recover your damages against if there is a breach of the lease.
Our Chicago business litigation lawyer at Ellis Legal explains more below.
A Personal Guarantee
One common tool is the personal guarantee, which puts the signer of the contract on the hook personally and allows you to go after his or her assets, in addition to the company's assets, in the event of a default.
But a lot of people aren't willing to put their personal assets at stake and simply won't do business with you.
What About the Good Guy Guarantee?
One way to avoid this problem is through the use of what is commonly known as a good guy guarantee (GGG), which is particularly useful in commercial leases. The tenant still signs a personal guarantee, but the lease has some extra considerations.
The GGG says that the tenant has to give written notice of the intent to terminate the lease early (something that would ordinarily be a breach of the lease). You can specify how much advance notice needs to be given.
So long as the rent is current at the time of vacating the property and the property is in good condition, there will be no breach of the lease.
Why it Works
This works for both parties for a number of reasons.
From the landlord's standpoint, because of the notice period, the landlord gets a stronger assurance that he or she will have time to find another tenant should the tenant want out. The landlord also includes extra motivation for the tenant to make sure that the rent is current and the property is being taken care of so that if the property does need to be quickly re-let in the event of the tenant vacating, there is little downtime between tenants.
The landlord also gets the benefit of knowing that there is still a personal guarantee in the event of a breach or default.
Tenants, of course, get the benefit of having an "out" in an otherwise long term commercial lease, and the security of knowing that so long as the conditions are followed, there won't be any legal action. They do sign the personal guarantee, but it's one that has a far less likelihood of being used, so long as the tenant can abide by the terms of the (now much more lenient terms than they would be) lease.
Still a Guarantee
In truth, the GGG is still a personal guarantee, But it's one that is much less likely to be used because the landlord is making some concessions in return for the personal guarantee.
A landlord can add more conditions or concessions than the ones listed above as well—the core element, no matter what the terms are, is that the personal guarantee is signed in return for more negotiated and often tenant-friendly terms.
Problems with your commercial lease or any other business contract? Speak with a Chicago business litigation attorney at Ellis Legal at (312) 967-7629.