What is an Authorised Guarantee Agreement (AGA)?
When a tenant assigns its lease to a new tenant (assignee), the landlord may require the tenant to enter into an AGA with the landlord, as a condition of giving its consent to the assignment of the lease. An AGA is a form of guarantee given by the (outgoing) tenant to the landlord that if the assignee does not perform the tenant obligations under the lease, such as paying the rent, repairing the property etc, then the outgoing tenant will. In other words, the outgoing tenant becomes a guarantor for the assignee.
The limits for what characteristics an AGA can and cannot have are set out in the Landlord and Tenant Act 1995. An AGA may require the outgoing tenant to re-take on the lease or take on a new lease for the remainder of the term of the lease, if the assignee is made bankrupt or enters into liquidation. An AGA must not however contain any requirement on the outgoing tenant to guarantee the performance of an obligation of any person other than the assignee.
When are AGAs required?
A tenant can only legally be required to enter into an AGA if the lease expressly provides that this is a condition of assignment. A landlord can also legitimately require an AGA because it is reasonable to do so.
How long does the AGA last?
An AGA lasts until the outgoing tenant is released from their obligations at the end of the term of the lease or if the assignee assigns the lease (unless the lease has been assigned in breach of the lease in which case the outgoing tenant would remain liable under the AGA). The outgoing tenant may also be released if the lease is varied and the variations prejudice the tenant, part of the lease is surrendered, the landlord grants a concession, a co-guarantor is released or there is a surrender and re-grant of the lease.
Are there any risks in AGAs?
By signing an AGA, the outgoing tenant becomes legally obliged to take on the role of guarantor for the assignee. There are risks of considerable financial costs and time commitment if the assignee proves to be unreliable and if the outgoing tenant fails to meet its obligations under the AGA, then the landlord may take them to court. It is important to carefully consider whether to sign a lease that includes a condition for the tenant to enter into an AGA.
I have been asked to enter into an AGA, what should I do?
1. Check the terms of the lease to see if the landlord has an automatic right to require you to enter into an AGA. If the landlord does not, then you should check the landlord is acting reasonably by requiring you to enter into an AGA.
2. Check that the terms of the AGA do not provide that your liability shall extend beyond the term of the lease.
3. Obtain a covenant and indemnity from the assignee that they will not allow the lease to be assigned in breach of the lease (i.e. without the consent of the landlord).
If you would like to know more, don’t hesitate to contact me via email:firstname.lastname@example.org or by calling (0114) 218 4000.