What is an Authorised Guarantee Agreement (“AGA”)?

If you are a tenant of a commercial property then at some point (especially if you have taken on a lease with a lengthy duration) you may need to look to transfer (assign) your lease to a third party, either due to you selling your business, retiring, or simply moving to alternative premises.  Once the assignment has taken place you will no longer be the “tenant” under the lease and you may expect to have no further liability for the property.

Assigning a Lease

However, to assign a commercial lease, a tenant will usually need to obtain the landlord’s consent in the form of a Licence to Assign.  If the lease is a lease granted after 1 January 1996 (or is granted pursuant to an agreement, option, or court order made before that date) and the lease contains a provision which  states that the landlord can require an AGA as a condition of the landlord granting consent to the assignment, then the outgoing tenant will usually need to provide one. Even if the lease makes no specific requirement for an AGA, one could still be required in certain circumstances.

What is an AGA?

An AGA is an agreement by the outgoing tenant to guarantee that the incoming tenant will observe and perform all of the tenant covenants in the lease, which will of course include (but is not limited to) the payment of rent and compliance with all the tenant’s repairing obligations.  If the incoming tenant fails to comply with these obligations then the landlord can seek a remedy direct from the outgoing tenant, even though the outgoing tenant is no longer in actual occupation of the property and may have in fact assigned the lease several years ago. These remedies can extend to requiring the former tenant to take a new lease for the residue of the original lease term, so the original tenant effectively has to take the lease back.

An outgoing tenant’s liability under an AGA will only end on expiry of the lease, or, if earlier, the date that the incoming tenant then itself assigns the lease to another entity with the landlord’s consent.  It can therefore be seen that this residual liability could last for a considerable period of time.

What Should I Do?

Tenants should therefore always seek legal advice when taking on a new lease or when wanting to assign or take an assignment of an existing lease of commercial premises, to understand the liabilities you would be taking on as a new tenant and the potential financial liabilities you may still have even after you have long since parted with the lease.

Our friendly and experienced commercial property team at Guest Walker will be happy to guide you through the process.

Deborah Barton