What is an Authorised Guarantee Agreement?

Often, the lease will contain a stipulation that the tenant is required to enter an Authorised Guarantee Agreement (AGA) on assignment of the lease.

06 Dec What is an Authorised Guarantee Agreement?

Posted at 00:00h in Commercial Property Law by martin@beacondigital.co.uk

If you are entering into a lease for a commercial premises, it is important to understand what your responsibilities will be if you want, or need, to assign the remaining term of the lease in future, says Orlagh Willis, commercial property paralegal at HRJ Foreman Laws Solicitors. Often, the lease will contain a stipulation that the tenant is required to enter an Authorised Guarantee Agreement on assignment of the lease.

Entering the Authorised Guarantee Agreement (AGA) as the outgoing tenant means they will act as guarantor for the party to whom they are assigning their lease (guaranteeing that the assignee will comply with the terms and payments).

If the assignee was to default on the payment of rent, breach the tenant covenants of the lease, or disclaim the lease for any other reason, the original tenant may be responsible for any outstanding payments. The ongoing payments and covenants until the expiry of the lease would be vested in them.

It is important that a tenant carefully considers who they are assigning the lease to, and whether they are in a good position to comply with the obligations under the lease, so the tenant is not in a position whereby they are again responsible for the unexpired term of the lease.

A landlord may opt to waive the AGA, although this is unlikely as it leaves them without a guarantor for the new tenant during the term.

It is also important to note that if the lease is not contracted out of sections 24-28 of the Landlord and Tenant Act 1954 (LTA 1954), it is possible for the landlord to require the original tenant to remain as guarantor under any statutory continuation of the lease, unless and until it is terminated in accordance with the LTA 1954 (for example renewing the lease). This means that the AGA does not necessarily cease on the date of expiry written in the lease.

On assignment of the lease, you would also likely be responsible for the landlord’s costs in preparing a licence to assign and the Authorised Guarantee Agreement.

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You can also watch our video here – Commercial property leases. What you need to know.