The Authorised Guarantee Agreement (AGA) is a complex agreement developed in commercial property transactions. When a new lease is granted, it will often say that the tenant must enter into an AGA as a condition of any future assignment. 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 an 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 tenant under the existing lease, with the landlord’s consent.
The 1995 Act applies to leases granted on or after 1 January 1996. Under these “new” leases, a tenant who assigns with any consent the lease requires is automatically released from the tenant covenants, and an AGA is how a landlord keeps the outgoing tenant liable. Under leases granted before 1996, the original tenant usually remains liable for the whole term, even after assigning, and AGAs do not apply.
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
An AGA cannot make the assignor guarantee anyone other than the assignee, or impose a liability more onerous than the assignee’s own. Terms that try to do so are invalid.
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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, if the AGA says so.
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: either because the lease sets it out as a condition of consent, or because it is reasonable in the circumstances.
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 the lease does not require one, a landlord may still ask for an Authorised Guarantee Agreement where it is reasonable, for example if the new tenant is of lower financial standing than the outgoing tenant or is based overseas. The RICS Code for leasing business premises (2020) says landlords should ask for AGAs only where it is reasonable to do so.
In the absence of an AGA, the landlord may simply ask the assignee to provide 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 new tenant becomes insolvent (bankruptcy for an individual, liquidation or administration for a company), the AGA usually continues and the landlord is likely to look to the outgoing tenant for payment.
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 their obligations for the future, but they remain liable for any breaches that happened before then.
What happens in the case of a breach of the tenant covenants under a lease?
If the new tenant fails to keep to 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 insolvency.
Failure to meet all AGA obligations for any party involved may result in court proceedings for the sums due, interest and the landlord’s legal costs. It is a civil matter, not a criminal one.
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 assessing their financial standing and then provide their consent to the assignment in the form of a licence to assign.
A landlord’s consent is not always required. When the original lease was drawn up, the requirement for a licence to assign may have been implemented. If this is so, then assigning without the landlord’s consent is a breach of the lease: the outgoing tenant is not released from the tenant covenants, and the landlord may be able to forfeit the lease.
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 Licence to Assign.
What is a landlord’s licence to assign?
A licence to assign is a landlord’s consent for an existing tenant to assign the remaining term of a lease to an incoming tenant.
This licence 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 licence before any transfer is completed. Failure to do so may result in a breach of the lease, which means the outgoing tenant is not released and the landlord may be able to forfeit the lease.
- Statutory obligations
Where the lease says consent is needed and is not to be unreasonably withheld, the Landlord and Tenant Act 1988 requires the landlord to give a written decision within a reasonable time, setting out any conditions or reasons for refusal, and not to withhold consent unreasonably.
- Assignment conditions
If the lease places conditions or restrictions on the assignments that can be made, tenants must ensure that their assignee complies, otherwise the assignment will be in breach of the lease. Requirements such as proof of financial stability or references may be needed.
For more about commercial lease terms and licences to assign, please refer to Commercial Lease Terms: What should be included?
What is the process for obtaining a licence to assign?
In order to obtain a licence, 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 licence 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 be able to bring a claim under the Landlord and Tenant Act 1988 if the refusal is unreasonable. The landlord must show that its decision was reasonable.
Authorised Guarantee Agreement FAQs
Usually not. AGAs apply to leases granted on or after 1 January 1996 under the Landlord and Tenant (Covenants) Act 1995. Under older leases the original tenant normally stays liable for the whole term, even after assigning, unless the landlord agrees to release them.
Not directly. The courts have held that a guarantor of the outgoing tenant can be asked to guarantee the outgoing tenant’s obligations under the AGA (a “sub-guarantee”), but cannot be made to guarantee the incoming tenant directly (Good Harvest Partnership v Centaur Services, 2010, and K/S Victoria Street v House of Fraser, 2011).
Yes, for fixed charges such as rent and service charge. Under section 17 of the 1995 Act, the landlord must serve a notice on the former tenant within six months of the sum falling due, or it cannot recover that sum from them.
You may be able to. A former tenant who pays in full a sum demanded under a section 17 notice can ask the landlord, within 12 months of paying, for an “overriding lease” under section 19 of the 1995 Act. This makes you the new tenant’s landlord, so you can enforce the lease against them.
Only if the lease requires one as a condition of consent to assign, or if it is reasonable to ask for one in the circumstances. If you are taking a new lease, it is worth negotiating the AGA wording before you sign.
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. Looking for a solicitor in Brentford, a solicitor in Ealing, a solicitor in Belgravia, a solicitor in Pinner, a solicitor in Richmond or a solicitor in Canterbury? We have an office in each. Our partner, Raminder Uberoi, can also provide a Notary Public service at any of our London offices.
