What is an Authorised Guarantee Agreement?
Askews Legal LLP is your local Solicitors in Coventry and today we are focusing on Commercial Law and in particular what an authorsised guarantee agreement and how that affects a commercial lease.
There is a common misconception that selling a commercial lease will relieve the outgoing tenant of liability for rent and other covenants under the lease. However, if you are entering into a lease of a commercial property it is likely that the lease will include provision that the outgoing tenant enters into an Authorised Guarantee Agreement (AGA) if the lease is sold/assigned to a third party.
What is an AGA?
An AGA is an agreement which places an obligation on the outgoing tenant to guarantee the performance of the new tenant or “Assignee” of the tenant covenants contained in the lease. If the Assignee fails to perform the tenant covenants in the lease (including payment of rents and repair obligations) the AGA allows the landlord to pursue the outgoing tenant under the terms of the AGA.
An AGA also provides the landlord with the option to insist on the outgoing tenant taking on a new lease (on the same terms of the existing lease) if the new tenant defaults and the existing lease is disclaimed.
How long does it last?
It is usual that an AGA lasts from the date the outgoing tenant sells their interest in the lease to the Assignee until that Assignee has validly disposed of their interest in the lease to a third party or until the term of the lease comes to an end (whichever is sooner).
Points tenant should consider when negotiating terms of a lease
The Code for Leasing Business Premises in England and Wales 2007 provides that an AGA should only be required by the landlord if the Assignee is of lower financial standing than the outgoing tenant or if the Assignee is registered or resident overseas. It is suggested that for smaller tenants a landlord should accept a rent deposit from the Assignee instead of an AGA from an outgoing tenant.
Tenants can seek to agree with the landlord that an AGA will only be necessary if the above factors are relevant. Alternatively, a tenant can seek to negotiate that any lease expressly states that an AGA will only be provided if at the date of assignment, it is “reasonable in the circumstances”. Without the inclusion of the reasonableness wording in a lease a landlord could insist that the outgoing tenant enters into an AGA as a condition of the landlord giving consent to an assignment.
How can Askews help you?
Your local firm of Coventry Solicitors, Askews Legal LLP, has a dedicated team of Property specialists who can assist with any commercial property issues. For further advice or to obtain a quote, please contact Kuljeet Sandhu, Head of Commercial Property at Askews Legal LLP Solicitors in Coventry.
