Commercial Leasing Terms

 

Good Guy Guarantee

A good guy guaranty is a common lease guaranty in New York City which has became an important and usually a demanded clause by and for both landlords and tenants in structuring a commercial lease.

A typical good guy guaranty requires a creditworthy affiliate of the tenant (often a principal or investor in the tenant’s business) to guarantee the rent obligations under the lease through the date the tenant surrenders the leased premises to the landlord. Basically if the affiliate or “Good guy” does the following: (1) provides landlord with sufficient notice that tenant will be vacating the leased premises (2) has paid all rent obligations to landlord up and until the surrender date of the premises (3) delivers the premises in “broom-clean” condition and (4) has removed all possessions and rubbish from the premises, the “good guy” is released of all the remaining liability.

By way of background, the good guy guaranty was originally created by landlords to motivate tenants to surrender possession and avoid arduous landlord-tenant litigation. For tenants especially for start-up companies, it’s a limited guarantee which allows companies to lease their first space.

Note that a “good guy” guarantee can sometimes be omitted from a lease by way of a tenant offering a large security deposit to the landlord.

To read a bit more on the subject click here.

Financials

Landlords need to see financial information from all prospective tenants to determine if they want them in their buildings. The stronger a tenant is financially, the more attractive they are to the landlord and typically the better concessions, base rent, build-out we can achieve for a tenant. If a potential tenant doesn’t have adequate financial information, a landlord will either:  (1) reject the tenant, or (2) ask for a personal guarantee and in addition ask for a larger security deposit. This is generally the case with cash based companies or start-ups.

Security and Lease Deposit

The amount of required security deposit will vary based on the landlord’s financial assessment of the prospective tenant. At Fountain we always advise our clients to submit as much financial information as possible in order to negotiate a lower security deposit for you. The first 3 pages of you last year’s Tax returns, a bank statement, and/or accounting P&L statements from your CPA are all valid forms tenants may submit.

Additional Utility Charges

On top of your base rent, and real estate taxes, there may be other charges you will be responsible for:

Electricity: This is billed in one of three ways:

1) Direct – You pay your own electric bill directly to Coned or the electricity provider of the building.

2) Sub-metered – there’s a meter in your space or on the floor which belongs to the building (not the electric company) and on a monthly basis management  of the building will bill you for your use.  Managements will often also add a surcharge of 5-10% to your bill.

3) Per square foot/per year: this is usually between $3 and $3.50 per square foot per year regardless of your usage. For example, in a 1,000 sf space with the electric at $3.50/sf, the monthly electric charge would be:

$3,500 per year/12 (months) = $291

*Other charges tenants are frequently held responsible for are water, sprinkler, sewer, security guard, and/or garbage removal. These are usually billed as flat monthly charges ranging from $15-$45.

Proportionate Share of Real Estate Tax Increase

New York City real estate taxes are assessed every July. Each building is assessed a different tax every year. Sometimes the tax on a building does not go up, but it usually does and when it does most landlords do make efforts to have this reduced.

For example: A 100,000 square foot building pays Real Estate Taxes of $300,000 in 2008/2009 and increased in 2009/2010 to $310,000; therefore, the total Real Estate Tax increase for this year was $10,000. You occupy 1,500rsf or 1.5% of the building. Consequently, your proportionate share is $150 for the year. ($10,000 X 1.5%).

Note that Real Estate Tax information is public information you have the right to receive as a tenant.

To read a bit more on the subject click here.

Office liability insurance

Office liability insurance is a necessary expense every New York City tenant must plan for. All landlords will require tenant have this coverage in place prior to taking possession of a new space. Coverage required can generally range from $1M coverage per 1,000rsf and can cost as little as $600/year. Most plans also include property loss coverage at no additional cost to tenant so be sure to ask your insurance agent.

 Loss Factor

What is Loss Factor?
What is the difference between “rentable” and “usable” sqft?
-To get the answers to the above question plus much much more, please read our article “Loss Factor Explanation“ by clicking here.

-Fountain Realty Group

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