An Authorised Guarantee Agreement (AGA) is a legal term commonly used in commercial property and lease transactions. AGA was first introduced under the Landlord and Tenant (Covenants) Act 1995, and only applies to leases granted from 1st January 1996.
Before the introduction of the AGA, if a tenant transferred/assigned their lease, the new tenant would become solely responsible for the lease obligations, and the original tenant would no longer be liable on a lawful assignment. This left landlords vulnerable to potential default on lease obligations.
The purpose of the AGA is that it gives the landlord a means of recourse, in the form of a guarantee, against an outgoing tenant when they transfer/assign their lease to a new tenant.
It may be a requirement under the lease, the tenant is not to assign the lease without the consent of the landlord, which cannot be unreasonably withheld. Under the lease, the tenant may be required to provide an AGA, however where a lease does not specify and if reasonable in the circumstances, the landlord may request the tenant provide an AGA as a condition of the landlord’s consent. By entering into the AGA, the outgoing tenant sits as a guarantor for the performance by the new tenant of the tenant covenants under the lease.
The AGA was introduced to address the issue by providing a legal mechanism that allows landlords to hold the original tenant liable even after an assignment. Under an AGA, the outgoing tenant cannot be required to guarantee performance by anyone other than the immediate assignee. If the new tenant fails to fulfil the obligations under the lease such as paying rent and other outgoings at the property and compliance with the maintaining/repairing covenants, the landlord has the right to pursue remedies against the original tenant (the guarantor) to pay the rent or otherwise remedy any tenant default.
An AGA provides the landlord with an additional layer of security, ensuring that there is someone financially responsible for the lease terms even after the original tenant has dispensed the lease. It helps protect the landlord’s interests and allows for the continuation of the lease without disruption. Although, the requirement of an AGA is widely contended it is worthwhile that landlords, outgoing tenants and new tenants are aware of the impact and purpose of an AGA.
It’s important for outgoing tenants to understand the implications of an AGA, as it can potentially bind them to ongoing responsibility for the performance of the tenant covenants under the lease, even after assigning or transferring the lease and are no longer in control or occupation of the property.
An AGA typically remains binding from the date of assignment of the lease to the new tenant until the earlier of either, the date that the new tenant validly disposes of their interest in the lease to a third party or until the lease comes to an end.
It may be worth noting, that a landlord can waive the obligation of providing an AGA, although this is usually considered on a case-by-case basis.
It’s important to consider the role of an AGA when negotiating heads of terms for the sale/purchase of a lease and take advice on the terms and circumstances of an AGA to safeguard your rights and obligations. Seeking legal advice before entering an AGA is strongly recommended to ensure you fully understand its implications.
Should you wish to discuss anything further, please contact any member of our Commercial Property team.