By Mohammed Rahman
Borneo Martell Turner Coulston
WHEN a commercial property tenant assigns its lease to a new tenant (assignee), the landlord may require the tenant to enter into an Authorised Guarantee Agreement (more commonly known as 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 (the assignor) to the landlord that if the assignee does not perform the tenant obligations under the lease, for example by not paying the rent, not repairing the property etc. then the assignor must carry out these obligations. In other words, the outgoing tenant becomes a guarantor for the assignee – this is separate from a tenant having an independent guarantor.
There are other aspects to an AGA, like requiring assignor to re-take on the lease or enter into 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 assignor to guarantee the performance of an obligation of any person other than the assignee.
It is vital that commercial landlords understand that a tenant can only legally be required to enter into an AGA if the lease expressly provides that this is a condition of assignment. Therefore, before entering into a lease, it is extremely important that any terms relating to assignments are also considered, even though this is something people will think is not a concern when entering a new landlord and tenant relationship.
An AGA will last until the assignor is released from their obligations at the end of the term of the lease or if the assignee assigns the lease further on during the remaining terms of the lease. The assignor may also be released if the lease is varied or the lease is surrendered by the landlord, or if the landlord grants a concession to allow the release of the assignor.
By signing and entering into an AGA, the assignor becomes legally obliged to take on the role as a guarantor for the assignee. There considerable financial risks and time commitments which will come into play for the assignor if the assignee proves to be unreliable.
If the assignor fails to meet its obligations under the AGA, then the landlord may take both assignor and assignee to court.
If as a tenant you have been asked to enter into an AGA you should:
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. Contact a commercial property solicitor to consider any documents and proposals for you.
If you would like advice on these points or any other property matters, contact Mohammed Rahman at Borneo Martell Turner Coulston Solicitors, email or call 01604 622101.
