5th February 2025 ❘

What is an Authorised Guarantee Agreement?

Luca Iannotti

By Luca Iannotti

 

What is an Authorised Guarantee Agreement?

An Authorised Guarantee Agreement (AGA) is a legal document that is often used as a condition imposed on tenants when assigning their leases. An AGA is a guarantee given by the outgoing tenant to the landlord that the incoming tenant (the assignee) will comply with the terms of the lease. This includes, but is not limited to:

  • Paying rents – Paying rent on the dates specified, including annual rent, insurance rent, service charge and VAT on those figures.
  • Maintaining the property – Upholding the required standard of repair and maintenance in accordance with the lease.
  • Complying with other lease covenants – Adhering to all other terms of the lease, such as those that relate to alterations and permitted use.

Under the AGA, the outgoing tenant can be held liable if the incoming tenant fails to meet their obligations under the lease. This means the outgoing tenant could be liable for unpaid rent, damages to the property, or any other breaches of the lease committed by the incoming tenant.

When will the outgoing tenant be released from an Authorised Guarantee Agreement?

The specific terms for release from an AGA will be outlined within the agreement itself. However, typical scenarios where an outgoing tenant might be released from their obligations under an AGA include:

  • Successful assignment by the incoming tenant – If the incoming tenant subsequently assigns the lease to a new tenant, the outgoing tenant’s liability under the AGA may be reduced or eliminated.
  • Lease expiration – Upon the expiration of the lease term, the AGA typically becomes void.
  • Landlord’s agreement to release – The landlord may, at their discretion, agree to release the outgoing tenant from their obligations under the AGA.

It is important to note that the outgoing tenant may still be liable for any breaches of the lease that occurred before the outgoing tenant was released from the AGA.

What should an outgoing tenant do if asked to give an Authorised Guarantee Agreement?

If an outgoing tenant is asked to give an AGA, it is important to seek legal advice. We can carefully review the specific terms of the proposed AGA for you and provide guidance on the best course of action. For example, it is important to review the conditions on assignment as there may be instances where an AGA is not an absolute requirement or where alternative security arrangements could be negotiated with the landlord.

Why would a Landlord want an Authorised Guarantee Agreement?

A landlord may want an AGA for a number of reasons, including:

  • The incoming tenant is viewed as higher risk – If the incoming tenant is a new business with limited financial history or a weaker financial position compared to the outgoing tenant, the landlord may view an AGA as a tool to mitigate risk.
  • Enhancing security – An AGA provides the landlord with an additional layer of security, ensuring that there is another party responsible for compliance with the lease terms.

In some cases, a landlord may be willing to consider alternative security. This could include:

  • Rent Deposit – The incoming tenant may be required to deposit a sum of money with the landlord as security against breaches of the lease.
  • Personal Guarantee – Another party may provide a personal guarantee, taking on personal liability for breaches of the lease.

We will soon be sharing another piece from our Commercial Property and Property Litigation teams, providing further information on Assignments. In the meantime, if we can be of help, please get in touch.