A Pivotal Moment for Good-Guy Guaranties: In Light of Recent Court Ruling, Key Lessons for Landlords and Tenants in NYC

Imagine you are a commercial landlord in Manhattan renting office space to a startup. To protect yourself, you ask the tenant’s principal to sign a good-guy guaranty, expecting it to guard against harm if your tenant leaves early – the thinking is, you can leave the entity on the hook for the duration of the term, but as for the person behind that entity guaranteeing the performance of its obligations, you want to allow a ‘good guy’ to get out of the lease. Otherwise, there would be little purpose in forming a ‘limited liability’ entity like an LLC or corporation if, when you transacted in the name of such entity, any other party to a contract with it can simply hold you personally liable for the performance of the covenants contained in the contract. 

In practice, commercial landlords may allow their leases to contain such a ‘good guy’ clause – essentially allowing the guarantor to walk away – first upon notice and thereafter complete surrender of the premises – so long as he is not in default in the lease. For nearly a century, this has typified party positions across myriad commercial leases: if you’re a good guy, (i.e. not in default) and you give me notice under the Good Guy Guaranty (“GGG”), the tenant fully vacates and returns the keys, then the surrender only extinguishes the guarantee if invoked “in accordance with all other terms of the lease.”  Of course, the lion’s share of landlords have at least one other clause elsewhere in the lease providing that the surrender / GGG release is only effective “upon the Landlord’s acceptance and written approval of the surrender.”  

Playing out the typical scenario, the landlord could often simply withhold written approval, and/or find some pretext to consider the tenant entity in default, thus keeping the guarantor on the hook, never extinguishing his obligations even in instances where the GGG did actually apply. 

As as landlord, if you never formally accept the surrender of the premises, can you still hold the guarantor liable? A recent New York Court of Appeals decision in 1995 CAM LLC v. West Side Advisors, LLC (2025 NY Slip Op 05782) clarifies this question—and the answer depends entirely on how the guaranty was drafted. 

And let’s be clear: this ruling has significant implications for landlords, tenants, guarantors, real estate investors, and legal advisors involved in commercial leasing in New York City. Understanding the details can help you negotiate better contracts and avoid costly disputes. 

As either landlord or commercial tenant, you would do well to audit your lease in accordance with this holding to examine whether it applies to you. Given that most commercial leases contain a rider which ‘incorporates by reference’ the other terms of the lease including the terms of the form lease preceding the rider, careful and diligent synthesis of these complicated contracts is a must.  

What Happened in the Case

In this case, the tenant vacated an office space in New York City and returned the keys to the landlord. The lease was a standard form from the Real Estate Board of New York, Inc. (REBNY), which required the landlord’s written acceptance of surrender to officially end the lease. The guaranty, however, stated that the guarantor would be released once the tenant “completely vacated and surrendered” the premises with 30 days’ notice. Lower courts found the guarantor was not off the hook. 

On appeal, the NY Court of Appeals (New York’s highest state court) disagreed. It ruled that the guarantor’s liability ended once the tenant met the guaranty’s conditions: giving notice, vacating the space, and returning the keys. Nothing more should have been required on these facts, the court found. The landlord’s formal acceptance of surrender was not required to release the guarantor. 

This decision highlights the importance of clear and consistent language in guaranties and how it can affect liability. Even if you think one clause is drafted with precision and mandates clear rights and obligations to guide the parties, very often a lengthy lease will contain contradictory language elsewhere (lease often run between 40-125pp depending on various factors) completely inconsistent with, or dilutive of, the clause on which either party seeks to rely in the event of a dispute over liability. 

Why This Ruling Matters for Both Landlords and Commercial Tenants

For landlords, business owners, real estate investors and legal counsel, this decision sends a clear message: if you want the guarantor to remain liable until you formally accept the tenant’s surrender, your guaranty must explicitly say so. You cannot rely on language that simply refers to the lease terms. This cautionary tale makes clear that the Court of Appeals does not want to reward lazy legal drafting that leaves open ambiguity and limitless liability. Notably, the Court observed that there would be no point whatsoever to a GGG if the landlord could simply withhold approval and weaponize its role in that transaction. The Court disallowed what it viewed as inequitable overreaching by a landlord. 

Here are some practical takeaways:

• Draft guaranties with precise language that clearly states when guarantor liability ends.

• Avoid vague references to lease terms without specifying the landlord’s role in accepting surrender.

• Include provisions that require landlord acceptance if you want to maintain control over the lease termination process and provide conditions for same. 

• Review standard lease forms and guaranties to ensure they align with your risk management goals, and be sure to excise incongruity in lease clauses, or be clear which controls in the event of conflict. 

Failing to do take caution in commercial lease drafting and negotiations could mean losing the ability to pursue guarantors for unpaid rent or damages after the tenant leaves, even if you have not formally accepted the surrender. For tenants, it could mean that you face liability than the lease says, and in all events begs a careful review of the lease to which your business – and you – are subject. 

What Tenants and Guarantors Should Know

This ruling gives tenants and guarantors more control over their obligations. If tenants comply with the surrender requirements in the guaranty—such as providing notice, vacating the premises, and returning keys—they can end their liability sooner than previously assumed.

Key points for tenants and guarantors:

• Understand the exact surrender conditions in your guaranty before signing.

• Provide clear notice and vacate properly to meet your obligations.

• Return keys and other access devices as required to complete surrender.

• Keep records of your compliance to protect yourself from future claims.

This decision can help tenants avoid unexpected personal liability after they have fulfilled their surrender duties.

Advice for Legal Advisors and Law Firms

For lawyers advising clients in the NYC commercial leasing market, this ruling underscores the need for precision in contract drafting. Standard boilerplate guaranties may not provide the protection landlords expect.

Legal professionals should:

• Review and update guaranty templates to reflect this ruling.

• Advise clients on the importance of clear surrender language in both leases and guaranties.

• Educate clients about the risks of relying on lease terms alone to define guarantor liability.

• Draft exit strategies that minimize disputes and clarify responsibilities.

This case is a reminder that small wording differences can have major financial consequences.

Final Thoughts

This recent decision is a watershed moment, and clarifies a critical point in commercial leasing: the exact language in good-guy guaranties determines when guarantor liability ends. Landlords must draft guaranties carefully to protect their interests, while tenants and guarantors gain more certainty about their obligations.

If you are a property owner leasing to commercial tenants, or a business owner occupying space under a lease the obligations of which have been personally guaranteed, review your leases and guaranties with this ruling in mind and seek counsel to reconcile any issues or concerns that arise. 

Clear, precise contract language can prevent costly disputes and provide a smoother exit process for all parties.

Our firm stands ready to assist your business with these legal needs.

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