Some of the most frequent questions clients ask are related to Guarantees. Commercial Landlords want to know what their recourse is if a corporate Tenant stops paying rent. A real estate buyer may want to know the implications of personally guaranteeing a purchase money mortgage. A commercial Landlord or Tenant may want to understand the difference between a full personal guaranty and a “Good Guy” Guaranty. The answer, as usual, is that the devil is in the details. No two Guarantees are identical, and clients often rely on advice of counsel to review and, where appropriate, negotiate the terms of the Guaranty.
So what is a Guaranty? Simply put, a Guaranty is a promise to pay the debt of another. A “full personal guaranty” is a broad promise to satisfy all of the obligations of another in connection with a specified transaction. For example, if an individual gives a full personal guaranty on a lease, the individual is promising to satisfy all of the Tenant’s obligations under the lease.
A “limited” personal guaranty on the other hand, is a Guaranty that is limited in certain respects. For example, in a Limited “Good Guy” Guaranty an individual might promise to satisfy the obligations of a commercial Tenant until such time as the commercial Tenant notifies the Landlord of its intention to vacate the premises and in fact vacates the premises.
On a practical level, the Guaranty is a legal document designed to allocate risk among the parties. Without it, a Landlord with a commercial Tenant may have little or no recourse if a commercial Tenant defaults on its obligation to pay rent. The limited Good Guy Guaranty is a creative solution that reduces the Landlord’s risk without exposing the Tenant’s principle/Guarantor to so much risk that they would be unwilling to enter into the transaction.
As noted previously, the terms of the Guaranty and the circumstances under which the Guarantor will be released, are often negotiated by the attorneys in the context of a real estate transaction. Before signing a personal Guaranty, an individual would be wise to seek advice of counsel.
For questions about Guarantees and other aspects of New York real estate transactions, or general information about our firm, please contact us at (914) 338-8050 or send an e-mail to firstname.lastname@example.org. We look forward to hearing from you.
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