An Authorised Guarantee Agreement (AGA) is a contract that requires a departing tenant to ensure that the new tenant, often known as the “Assignee,” complies with the tenant covenants outlined in the lease.
The AGA permits the landlord to pursue the departing tenant in accordance with the AGA’s provisions if the Assignee neglects to fulfil the tenant covenants in the lease, which include payment of rent and repair responsibilities.
If the new tenant defaults and the existing lease is disclaimed, an AGA also gives the landlord the right to demand that the departing tenant sign a new lease (with the same conditions as the previous one). In this article, Authorised Guarantee Agreements, we take a look at the process and mechanism involved.
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When is there a requirement to sign an AGA?
The terms of your tenancy agreement will determine this. Unless you and your landlord can reach a different arrangement, you are legally required to produce an AGA if the lease specifies that one is needed to assign it. You should speak with a commercial property solicitor if the lease is silent on the subject. They can provide you with advice on whether your landlord has a right to want an AGA.
According to the 2007 Code for Leasing Business Premises in England and Wales, the landlord should only request an AGA in the event that the new tenant is registered or resides abroad, or if the new tenant is less well-off financially than the departing tenant. In every other situation, a landlord ought to take the departing tenant’s rent deposit rather than demanding an AGA.
How long does an AGA last?
Typically, an AGA begins on the date the departing tenant transfers their portion of the lease to the assignee and continues until that assignee has lawfully sold their portion of the lease to a third party or the lease’s term expires, whichever happens first.
Tenants may attempt to include a temporal restriction on their liability under an AGA, depending on the strength of their negotiation position. To safeguard the tenant’s position on a later assignment, any time limit that is agreed upon should be made clear in the lease or, if it is agreed upon at the time consenting to an assignment is granted, the AGA.
How does an AGA work?
In accordance with subsection (2) of section 16 of the Landlord and Tenant (Covenant) Act (LTCA) 1995, the agreement must be as follows to qualify as an AGA:
- It is the responsibility of the prospective tenant to ensure that the outgoing tenant fulfils the covenants (lease obligations) from which the tenant has been released.
- The conditions for entering into the agreement are specified in subsection (16) of section 16 of the LTCA 1995.
- The provisions of the agreement must adhere to subsections 16(4) and 16(5) of the LTCA 1995.
- The former lessee may be pursued by the landlord for payment, maintenance, and other obligations outlined in the Commercial Lease Agreement if the new lessee fails to comply.
An AGA is in effect from the moment the outgoing tenant transfers their lease interest to the incoming tenant until the later of the lease term expiration or a valid sale of the incoming tenant’s lease interest to a third party.
What are the risks associated with transferring the lease?
It’s critical for tenants to be aware of the risks involved in providing an AGA when assigning a lease. It is usually worthwhile to request that the landlord waive this requirement, especially if the assignee’s covenant strength is stronger than the tenant’s or if the landlord is receiving a rent deposit from the assignee.
A landlord will require an AGA to be signed if the tenant is assigning to an assignee with a weaker covenant strength. The tenant runs the risk of the assignee breaking the covenants, in which case the landlord can take legal action to get the tenant to comply. This could imply that the tenant is obligated to pay the rent, maintain the demised property, and fulfil any other obligations under the lease, which could get expensive for the tenant.
The landlord may ask the tenant to sign a new lease if the lease is disclaimed due to the assignee’s insolvency. Naturally, this would negate the original intent of the tenant to terminate the lease.
The last aspect is that the AGA may extend over the conclusion of the contractual period if the lease benefits from security of tenure under the Landlord and Tenant Act of 1954. For an unspecified amount of time, the tenant might be ensuring the assignee complies with the covenants. Therefore, it is advisable that the tenant aim to restrict their AGA obligations just to the duration of the contract, rather than any “holding over” period.
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We have a proven track record of helping clients with authorised guarantee agreements. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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It is important for you to be well informed about the issues and possible implications of an authorised guarantee agreement. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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