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Category: Commercial Corner

What Is So Good About a Good Guy Guaranty?

October 24th, 2014 — 2:43pm

divorce1In a commercial lease, a “good guy” guaranty is often signed by one or more of the tenant’s principals. A “good guy” guaranty functions to ensure the payment of rent (and sometimes the performance of other obligations) under the lease through the date that the tenant surrenders possession of the premises. It is less onerous than a personal guaranty which would obligate the guarantor to all of the lease obligations during the entire term of the lease Continue reading »


The typical scenario in which a “good guy” guaranty becomes operative is as follows: the tenant can no longer pay rent and would like to cancel the lease prior to the lease expiration date; the tenant gives the landlord notice that it would like to surrender the space; the tenant surrenders possession of the space on the agreed upon date; and the “good guy” guarantor is liable up until the date of surrender. Even though the guarantor will be released from liability on the surrender date, the named tenant will remain liable under the lease.

Although the “good guy” guarantee is more favorable to the tenant than an unlimited guaranty, there are some pitfalls. Among the concerns are: (i) the amount of notice that tenant must give the landlord prior to vacating the premises; and (ii) the scope of the guarantor’s liability.


The “good guy” guaranty provides that the tenant must give the landlord advance notice of the intent to surrender the premises before a guarantor will be released. The notice period reduces the likelihood that the space will be vacant by giving the landlord a sufficient amount of time to find a new tenant.

How much notice is required? Notice periods may range anywhere from one to three months or longer. The guarantor will be liable for certain agreed to lease obligations up until the space is surrendered with the proper notice.

Scope of Liability

The scope of liability under the “good guy” guaranty can vary widely. Some may state that the guarantors are only liable for monetary obligations, such as rent, additional rent, holdover charges and the security deposit.

Many current “good guy” guaranties, however, include the guaranty of performance of all other lease obligations, including the duty to repair the premises, remove any improvements and to indemnify the landlord in connection with personal injury actions which are not covered by insurance.

We have noticed that it is common for term sheets of commercial leases to simply provide for a “good guy” guaranty without describing what it is that the tenant’s principal will be guaranteeing and for how long. While brokers often say “you will only be liable for the rent”, this is rarely the case. More often than not, the tenant’s principal agrees to a guaranty without knowing what obligations they will ultimately be responsible for.

Since the liability that a “good guy” guarantor is exposed to can vary widely, we urge proposed tenants to work with their attorney to clarify the obligations they are willing to assume before agreeing to a “good guy” guaranty in the term sheet. Otherwise, it may be difficult to change the terms of the guaranty while negotiating the lease and the tenant’s principal may wind up with more exposure than he or she bargained for.

By: Jerome J. Strelov and Ryan V. Stearns

Comment » | Commercial Corner, Commercial Leases, Good Guy Guarantees, News

BIDs Are Creeping Into Commercial Leases

October 9th, 2014 — 2:19pm


Business Improvement Districts (BIDs) have serious monetary implications to tenants of commercial buildings. NYC has 69 BIDs, the most of any city in the U.S., so commercial tenants should be aware of their existence and their potential monetary effect.

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BIDs are creatures of a statute which allows for the formation of neighborhood economic development organizations. These organizations are designed to deliver certain additional services to the neighborhoods they represent, which may include capital improvements, sanitation, security and neighborhood amenities, such as Wi-Fi. The property owners pay a “BID assessment” to the applicable BID to finance those supplemental public services. For example, the East Midtown Partnership is a BID which covers a large area of the city spanning from Madison Avenue to 2nd Avenue and East 49th Street to 63rd Street, affecting approximately 818 retail businesses. The East Midtown Partnership provides, among other things, sanitation services, business promotional services and holiday lighting.

The amount of assessment paid by property owners is determined by a specific formula that each BID creates for its district. The East Midtown Partnership’s budget is capped by the City at $2.2 million, which sum is funded by building owners (or more likely, their commercial tenants) within the BID. According to Rob Byrnes, president of the East Midtown Partnership, the landlords or commercial tenants within his BID contribute roughly $.08 per square foot of commercial space. Residential buildings are assessed a nominal $1.00 per residential unit while any commercial tenants within the residential building are assessed pursuant to the standard formula.

BIDs have monetary implications for tenants of commercial leases, as the fees paid by the landlord will likely be passed down to the tenant. A lease for retail space which is part of the East Midtown Partnership, for example, will undoubtedly include a provision requiring the tenant of the space to pay the BID assessment.

It is our contention, however, that the BID assessment is effectively a tax imposed upon the landlord, similar to a property tax. As such, it should be treated as a tax for purposes of the lease and the tenant should only be required to pay the increases, if any, over a base BID assessment year. As this is often not the case, tenants should be on the lookout for lease provisions requiring them to pay their proportionate share of the BID assessment.

Ryan V. Stearns and Jerome J. Strelov

Comment » | BID, Commercial Leases, News

Art On The Wall? You May be In For A Surprise

May 22nd, 2013 — 1:01pm

artIs your restaurant tenant planning to have a mural painted?  Are you planning to install a sculpture in the lobby of one of your buildings?  Be cautioned that it might not be easy to remove that work and you might find yourself on the wrong end of a lawsuit if you damage the work.  Even after artists transfer their ownership interests in artwork they created, they still may have rights known as “moral rights” to works located on your property.  Here’s the skinny on what you need to know about moral rights and how they can affect your property. Continue reading »


The Visual Artists Rights Act (“VARA”) is an amendment to the federal copyright law that grants certain moral rights to visual artists, including the rights of attribution and integrity.  Under the right of attribution, an artist has the right to claim authorship of her work and to prevent the use of her name as the author of: (i) any artwork she did not create or (ii) any artwork that has been distorted, mutilated or modified in a way that is prejudicial to her honor or reputation.  Under the right of integrity, the artist may generally prevent: (i) any intentional distortion, mutilation or modification of an artwork that is prejudicial to her honor or reputation and (ii) the destruction of any work of recognized stature.

Importantly, artists maintain these rights regardless of whether they have sold or otherwise transferred the artwork or their copyright interests in the work.  For works created on or after June 1, 1991, the effective date of VARA, the rights provided for endure for the life of the artist, or in the case of a joint work, the life of the last surviving artist.  These rights may not be transferred, but they can be waived by a writing signed by the artist.

Certain exceptions to these rights exist.  For example, modifications caused by the passage of time (such as fading or dulling) or the inherent nature of the materials used to create the artwork do not violate an artist’s rights under VARA.  Additionally, modifications resulting from conservation (e.g., re-touching) or the public presentation (including lighting and placement) of an artwork are not VARA violations unless the modifications are caused by gross negligence.   Moreover, the law only applies to a “work of visual art,” which is defined to include paintings, drawings, prints, sculptures and artistic photographs, existing in a single copy or in a limited edition of 200 copies or fewer.  Posters, maps, globes, charts, technical drawings, diagrams, models, applied art, motion pictures and other audio-visual works are specifically excluded from the definition of that term.  Additionally, works “made for hire,” which are works that are prepared by an employee within the scope of her employment, are not protected under VARA.

Of interest to building owners is the so-called “building exception,” which applies to works “incorporated in or made a part of a building in such a way that removing the work from the building will cause modification of the work.”  These works do not get protection from modification if the artist consented to the installation of his work in the building (if pre-VARA) or if the building owner and the artist executed a written acknowledgment that removal of the work may subject it to modification (if post-VARA).  In addition, the right of integrity does not apply where an artwork can be removed without damage from a building, provided the building owner either makes a diligent, good-faith attempt without success to notify the artist of the intended removal or provides notice to the artist, who fails to remove the work or pay for its removal.  When the building owner has complied with this notice requirement, the artist has no claim under VARA when the work is removed.

Since its enactment over twenty years ago, courts have decided several hard cases interpreting the language of VARA.  In the real estate context, several courts have grappled with cases questioning whether the statute applies at all to the artwork in question.  For example, in Carter v. Helmsley-Spear, Inc. , 71 F.3d 77 (2d Cir. 1995), a trio of artists filed a lawsuit to prevent a building owner and manager from altering artwork that they were commissioned to create for a commercial building located in Long Island City, including several sculptural forms that they affixed to the walls and ceiling of the building’s lobby.   In that case, the court rejected the landlord’s claim that the work was “applied art” since it was affixed to the building, but nonetheless dismissed the artists’ case because the court found the artwork was “work made for hire,” and therefore not a work of visual at under VARA.   In Phillips v. Pembroke Real Estate, Inc., 459 F.3d 128 (1st Cir. 2006), an artist tried to prevent a manager of a public park from removing several sculptures that he created specifically for the park, including stone forms that were integrated into the landscape of the park.  The artist eventually lost the case after an appellate court ruled that his sculpture was site-specific artwork, which is not covered by VARA.   This ruling was called into doubt by a court which recently dismissed on other grounds an artist’s VARA claim challenging the modification of a wildflower garden he created for a city park.  See Kelley v. Chicago Park Dist., 635 F.3d 290 (7th Cir. 2011). Although the property holders prevailed in these cases, they had to endure protracted legal battles in order to resolve the artists’ claims under VARA.

The Take Away

Before artwork is installed on your building, you might want to consider whether to add language in your agreements protecting you from potential VARA claims.  If you are commissioning artwork to be displayed on your building, you should consider whether to include a provision in your commission agreement whereby the artist waives any and all moral rights, including the artist’s rights under VARA.  If you want to hire an artist to create artwork to be incorporated into your building in such a way that removal would damage the work, you should also consider obtaining a written acknowledgment signed both by you and the artist stating that the installation of the work may subject the work to damage.  You should also keep records that include the artists’ contact information and update these records regularly so that you can comply with your notification obligations in the event that you wish to remove an artwork from your premises.

If you think your tenant may commission artwork to be installed in a leased premises, you might want to consider including in the lease the tenant’s agreement to obtain a VARA waiver from any artist hired to create artwork for display on the premises.  You also may want to include in your lease a provision whereby the tenant would indemnify you for any damages incurred as a result of a VARA claim.

By Amelia K. Brankov, counsel at the law firm of  Frankfurt Kurnit Klein & Selz.

2 comments » | Art, Commercial Corner, Commercial Leases, News

Is Your Security Secure?

February 19th, 2013 — 10:18am

secA knock on the door interrupts the banter of the cooperative’s board of directors, who are sitting around the living room of the president’s apartment.  It’s the fourth member at the door, who will make up the quorum necessary for this month’s matters to be resolved.  Before voting on the approval of an applicant or discussing the proposed capital improvements, the members want to finalize the lease of the commercial storefront owned by the cooperative.  While none of the members are lawyers or landlords by trade, they nonetheless have managed to negotiate a simple 10 year lease of a gluten-free vegan smoothie health bar.  The new lessee recently mailed a check for the security deposit which now sits in front of the board members.  After some discussion, one of the unwitting members suggests depositing the security deposit check into an interest bearing account which he uses for his own personal motorcycle repair business.  Although the board’s actions may appear legitimate on the surface, they are about to make a fatuous mistake which carries with it serious legal consequences.

Continue reading »

Our unassuming board is going to want to be made aware of certain regulations governing the security deposit before finalizing their commercial lease.  While the internet is a never-ending source of articles and guides relating to the legal requirements on landlords in the residential paradigm, the internet is noticeably less fulfilling in the commercial setting.  This is likely to leave our amateur landlord who is trying to navigate the commercial leasing waters perplexed.  Of particular concern to is (a) whether to deposit the security into an interest bearing account and (b) whether the security should be deposited into a separate account designated strictly for such deposits.

If our benevolent board decides to do their due diligence, they are going to run into some serious confusion the minute they begin reading the relevant statute, New York’s General Obligations Law (the “NYGOL”)  § 7-103(2-a), which reads, “Whenever the money so deposited or advanced is for the rental of property containing six or more family dwelling units, the person receiving such money shall . . . deposit it in an interest bearing account . . .”  Clearly enough, the statute requires the security to be deposited into an interest-bearing account if the rental unit is situated in a building with six or more apartments, and does not require the same for a non-residential building being leased strictly for commercial purposes.  But what if the building, like the one being operated by our unwary board, is being utilized primarily as a residential cooperative or condominium, but contains a commercial storefront?  Does the board have to put the security deposit for rental of the storefront into an interest bearing account because the property also contains six-plus dwelling units?  This type of scenario is hardly an anomaly, yet the ambiguous language of the NYGOL leaves those who have a reason to care with unanswered questions and a slew of potential legal ramifications.

So what is the Board to do?

There is a simple solution with little to lose as the NYGOL also allows the cooperative owner to retain a sum equivalent to “one percent annum” of the earned interest as an administrative expense.   It is pretty clear that the coherent plan of action for the board to take is to deposit their commercial tenant’s security into an interest bearing account and pay the tenant all interest earned, less one percent, regardless of the argument that the plain language of the NYGOL may not apply to commercial leases.

Now that the board is aware of the type of account to use and who is entitled to the interest, what should we make of the member’s suggestion to deposit the security into his personal business account?  The answer is much simpler than the previous conundrum.  A landlord may not comingle a tenant’s security deposit with other funds in a landlord’s general account.   Case law has held that the consequence of doing so is conversion which entitles the tenant to recover the deposit in its entirety even if the tenant may be in breach of the lease, a very bad result for our cooperative and the board of directors.   Paterno v Carroll, 75 A.D.3d 625, (N.Y. App. Div. 2d Dep’t 2010).  Moreover, the board has a compelling justification to act within the bounds of these laws as § 7-109 grants the Attorney General authority to bring suit in the name of the People of the State of New York for violations of the sections relating to security deposits.

Our recently learned board is also going to want to take into consideration a few other requirements before adjourning their monthly meeting.  § 7-103(1) also requires the landlord who places his tenant’s security into an interest bearing account to give notice to the tenant specifying the name and the address of the bank where the deposit is held, by which the depository bank must have a place of business in New York State.

Now that we have managed to keep our board of directors out of trouble with regard to security deposits, they can concentrate on more interesting matters, such as arbitrarily denying the most recent purchase application…

– Ryan V. Stearns and Jerome J. Strelov


Comment » | Commercial Corner, For The Board, News, Security Deposits

Get it in Writing- A Lesson to be Learned

May 29th, 2012 — 2:06pm

Last week, after 70 years of serving Manhattan’s midtown crowd, the New York institution known as The Primeburger closed.

It was known as much for its 1950’s high school swing out seats as for its delicious burgers.  When they announced the closing saddened crowds of long time faithful customers gathered to eat their last meal.  Continue reading »

I was one of them.

 Jerry gets primed for his last Prime Burger

I’ve been eating at The Primeburger for over 20 years and will miss the tomato soup and prime burger combo that was so popular.  But, as sad as I am to see this virtual landmark close, the real estate lawyer in me was curious as to what really happened, since I knew that the owners of the restaurant also owned the building.  The word on the street is that they sold the building with an ORAL promise to let them stay and run The Primeburger.  However, right before the closing, set for later this month, the almost new owners advised that they had other plans for the building and that The Primebuger, cool seats and all, had to get out of Dodge.   The lesson to be learned is basic yet as in this instance, often overlooked.  GET IT IN WRITING.

A writing is a writing is a writing. 

Here’s a great little short film about The Primeburger that is no more.  Sad.

Comment » | Commercial Corner, News

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