The Authorised Guarantee Agreement (AGA) is a complex agreement developed in commercial property transactions. In a grant of a new lease, AGAs are often a condition of an assignment burdened by the Tenant and in lease assignments. AGAs are required to be entered into by the outgoing tenant or, in other words, the assignor. Landlords, outgoing tenants (assignors), and incoming tenants (assignees) should be aware of the implications of entering into such agreement. Each party holds varying responsibilities, all of which are crucial in maintaining compliance with the Authorised Guarantee Agreement, otherwise resulting in potential consequences.
What is an Authorised Guarantee Agreement (AGA)?
Introduced by the Landlord and Tenant (Covenants) Act 1995, an Authorised Guarantee Agreement is an agreement in which an assignor who is assigning their existing lease to a new tenant, guarantees the assignee’s performance of the lease obligations, in order to remove themselves as tenants under the existing lease, with the landlord’s consent.
Once a lease assignment is complete, the assignor is no longer required to perform any obligations stated in the lease. These responsibilities now fall onto the newly assigned tenant. However, this doesn’t completely release the old tenant from the tenant covenants, as they are now acting as guarantor for the assignee under the AGA and may be called upon to take back the lease in the event of a default by the assignee. If the assignee fails to comply with stated lease terms, the original tenant must return as the obligated party.
For more on transferring a commercial lease, please see Commercial Lease Transfer
The AGA cannot impose further liability on the assignor otherwise it will be deemed void.
Specialist Advice
Our experience property law team understands the complexities involved with the development and fulfilment of Authorised Guaranteed Agreements for both tenants and landlords.
For expert advice send your enquiry via the conatct form on this page or call us on 02088406640
Why are Authorised Guarantee Agreements so valuable?
The main purpose of an Authorised Guarantee Agreement is to assure a landlord that the requirements of the lease will be met, regardless of who is acting on the stated obligations. It gives them a legal form of recourse against an outgoing tenant when they assign or transfer their lease, providing additional security to the landlord whilst encouraging the outgoing tenant to choose carefully the person or company to whom or to which they assign the lease.
What is the assignor guaranteeing to the landlord?
The assignor is guaranteeing to the landlord that the assignee shall pay the rents stated under the lease and perform all the tenant covenants of the lease.
If the new tenant fails to comply with any of the requirements mentioned above, the old tenant will be called on to pay the outstanding rents or perform the lease covenants. The landlord can also require an assignor to take back the lease in the place of the defaulting tenant.
Do I have an obligation to enter into an AGA?
In most cases, landlords can require an Authorised Guarantee Agreement as part of the lease, as a condition of a lawful assignment.
Standard commercial leases will often require that: the assignor enters into an Authorised Guarantee Agreement in favour of the landlord which is in respect of all the tenant covenants in the lease, requires the assignor to enter into a new tenancy for a term equal to the unexpired residue of the lease term and is otherwise in a form reasonably required by the landlord. It is therefore important as a tenant to recognise that your commitments do not necessarily end when you assign the lease.
If not a requirement under the lease, then landlords may still look to issue an Authorised Guarantee Agreement if new tenants are of a lower financial standing than the original tenant at the date of assignment or if they are based overseas under the Code for Leasing Business Premises in England and Wales 2007.
In the absence of an AGA, the landlord may simply ask the assignee to provide payment in the form of a rent deposit and/or seek a guarantor of good financial standing from the incoming tenant.
How long does this agreement last?
In most cases, an Authorised Guarantee Agreement will last from the initial date of assignment, until the assignee then transfers their interest to another tenant, or the lease runs out, whichever first arises. The original tenant is thus only bound by the agreement for the new tenant’s period of ownership. If the latter files for bankruptcy, other rules will go into effect.
Tenants can attempt to place a time limit on the agreement differing from the general rule above, but this depends on the strength of their negotiating position. This tends to be less common.
If the landlord grants a new lease, the parties are no longer bound by their AGA, as their lease is no longer valid. As soon as the lease expires or a new lease is granted, the assignor and assignee are released from all prior obligations.
What happens in the case of a breach of the tenant covenants under a lease?
If the new tenant fails to upkeep all necessary obligations, the responsibility falls to the old tenant where there is an AGA in place. As a result, the assignor may be required to pay rent arrears, service charges, or perform any duties the new tenant failed to complete. It is also possible the outgoing tenant may have to take on the lease once again if their assignee falls into bankruptcy.
Failure to meet all AGA obligations for any party involved may result in penalties such as being taken to court, fines, or criminal prosecution (in very specific cases).
What is the first step in transferring my leased property?
Once you have decided that you would like to assign or transfer a lease, you must first present the new tenant to your landlord for their approval. In some cases, the landlord must approve of the new tenant by way of accessing their financial standing and then provide their consent to the assignment in the form of a license to assign.
A landlord’s consent is not always required. When the original lease was drawn up, the requirement for a license to assign may have been implemented. If this is so, then any assignment without the consent of the landlord is not legally binding or valid.
In most leases where a landlord’s consent to an assignment is required, there will be additional provisions stating that the landlord may not unreasonably withhold or delay their consent.
Where an Authorised Guarantee Agreement is required, the agreed form will be included as part of the License to Assign.
What is a landlord’s license to assign?
A license to assign is a landlord’s consent for an existing tenant to assign the remaining term of a lease to an incoming tenant.
This license is required in the following circumstances:
- Lease provisions
If the initial lease provisions state that the landlord must give consent for assignment, then tenants must obtain a license before any transfer is completed. Failure to do so may result in a breach of the lease, thus rendering the assignment invalid.
- Statutory obligations
Even if the lease doesn’t officially state that consent is required, tenants may still need to obtain this license under the Landlord and Tenant Act 1988. This ensures that landlords cannot unreasonably withhold their consent.
- Assignment conditions
If the lease places conditions or restrictions on the assignments that can be made, tenants must ensure that their assignee complies, otherwise making the assignment invalid and unenforceable. Requirements such as proof of financial stability or references may be needed.
For more about commercial lease terms and licenses to assign, please refer to Commercial Lease Terms: What should be included?
What is the process for obtaining a license to assign?
In order to obtain a license, one must follow certain procedures.
- Application
A tenant must formally apply for the landlord’s consent, providing details about the proposed assignee and the terms of the assignment.
- Documentation
Tenants must submit relevant documentation to the landlord. These may include copies of the proposed assignment agreement, financial references for the assignee, or other requested information.
- Negotiation
Landlords may attempt to negotiate the terms of the license to assign. In this case, tenants should work to compromise with the landlord, addressing any potential concerns.
- Consent Decision
Once the landlord has considered all aspects mentioned above, they will either grant or refuse consent. If consent is given, the parties may continue with the lease assignment. If consent is refused, tenants may resort to legal recourse under the Landlord and Tenant Act 1988.
Expert Advice from Our Commercial Lease Solicitors
From retail units and office buildings to industrial premises and mixed-use developments, commercial property transactions often involve complex legal and regulatory considerations. Our commercial property legal services team includes experienced commercial conveyancing solicitors and dedicated commercial lease specialists, providing comprehensive support throughout the property lifecycle.
Navigating a lease agreement for commercial premises requires precise legal expertise. Our skilled commercial lease solicitors can assist with every step of leasing commercial property, from negotiation and drafting to completion. We advise on key commercial lease terms, including rent, duration, and break clauses, ensuring your commercial property lease meets your business needs. We regularly help clients manage commercial lease transfers, short-term commercial leases, and respond to challenges such as the forfeiture of a commercial lease or a commercial lease dispute. Whether you’re negotiating or renewing a lease, our team ensures your interests are always prioritised.
To book an appointment with one of our property lawyers, please call 020 8840 6640 or email solicitor@starckuberoi.co.uk. Our offices are located in Brentford, Richmond, Ealing, London Belgravia, and Canterbury, all within easy reach by public transport. Our partner, Raminder Uberoi, can also provide a Notary Public service at any of our offices.
