An Authorised Guarantee Agreement (AGA) is a contractual document that means that an outgoing tenant remains liable for the rent after they leave the premises. In the context of an AGM, the outgoing tenant (in charge of mission) guarantees the execution of the agreements … Subscribe here to receive communications from us on topical legal matters, news and events. For more information about the cookies we use see our Cookies page. Healthcare, Digital Health and Life Sciences, Authorised guarantee agreements - what are they and what should a tenant know. The guarantee will only endure for so long as the assignee remains the tenant. 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.Â, 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).Â, Depending on the strength of the tenant's negotiating position a tenant may seek to insert a time limit as to their liability under an AGA.  Any time limit agreed should be expressly stated in either the lease or, if the time limit is agreed when consent to an assignment is given, the AGA in order to protect the tenant's position on a subsequent assignment.Â, 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. AGAs are commonplace in leases of commercial property but it is important that tenants understand the implications of them when the lease is initially granted and on any subsequent assignment.Â, Dilapidations 2021 : Can’t pay won’t pay? At this stage the guarantor is not in possession of the premises (having made an assignment of the lease), but still has liability to pay the rent every following quarter if the assignee does not pay it. Our website uses cookies to distinguish you from other users of our website. AGAs were of course introduced by the Landlord and Tenant (Covenants) Act 1995 (the Act). special form of guarantee that specifically applies to leases granted from 1996 onwards In this case, your liability for the contract would last until the next assignment authorized by the owner. If the Assignee fails to perform the tenant covenants in the lease (which include payment of rents and repair obligations) the AGA allows the landlord to pursue the outgoing tenant under the terms of the AGA. An authorized guarantee contract (also called AGM) is a document that a landlord can ask the existing tenant (the agent) to sign during a tenancy to ensure the landlord`s position if the incoming tenant (the agent) does not comply with the terms of the tenancy agreement. authorised guarantee agreement. A guarantor under an AGA should take legal advice promptly upon receipt of a s.17 Notice. Accordingly, the 1995 Act set out to release tenants and third parties of their obligations on assignment. The law on Authorised Guarantee Agreements is complicated, and is evolving as cases on the Landlord & Tenant (Covenants) Act 1995 (the “1995 Act”) are working their way through the courts. Authorised Guarantee Agreements (AGA) were introduced by the Landlord and Tenant (Covenants) Act 1995 to find a balance between the liability of a tenant assigning a lease and the protection of the landlord (if the tenant assigns the lease to a party who is not favoured by the landlord). Ashfords advise on multi million pound acquisitions for Curtis Banks. In limited circumstances, the approved guarantee contract goes beyond a second assignment – z.B if you did not obtain the agreement of the lessor before the award of the lease. The liability lasts until the lease ends, or the new tenant (assignee) transfers the lease to someone else. However, this release is qualified, as the landlord has the option to require the outgoing tenant, on assignment, to guarantee the obligations of the new tenant (the “assignee”) by way of an “Authorised Guarantee Agreement”, commonly referred to as an “AGA”. Authorised Guarantee Agreements When a ‘new’ lease for the purpose of LT (C)A 1995 is lawfully assigned the tenant is released from the tenant covenants. This allows the guarantor to pursue the assignee for the rent debt and/or to negotiate a surrender of the underlease and/or to forfeit the lease (it now being an underlease) which enables the guarantor to re-use the premises or to market and dispose of them a second time. Now, and assuming completion of an AGA, the first tenant on assignment only remains liable … This is described as a “s.17 Notice”. Click here. Authorised guarantee agreements (AGA’s) were introduced under the Landlord and Tenant (Covenants) Act 1995 in an attempt to conciliate the potential risk to the landlord if the new tenant proves unreliable and confusion over the outgoing tenant’s liability. Under an authorised guarantee agreement (AGA), an outgoing tenant guarantees some or all of the obligations of an incoming tenant under a lease. Leases dated before 1 January 1996 (or granted pursuant to Agreements for Lease entered into before that date) are referred to as “old” leases, and leases dated on or after that date are “new” leases. © 2020 Ashfords LLPEdit cookies preference. This came to be regarded as particularly onerous on tenants and was seen as overly protective of landlords. It was introduced by section 16 of the Landlord and Tenant (Covenants) Act 1995 (LT(C)A 1995) to appease landlords whose position had been substantially reduced by the abolition of original tenant liability. When the sale of a tenancy agreement to which the Landlords and Tenants Act (Covenants) Act 1995 (The Act 1995) is issued, the question of whether (and how) a surety can guarantee the obligations of an outgoing tenant through an approved guarantee contract (AGM) is a sensitive one. We’d like to set Google Analytics and various other cookies to help us to improve our website by collecting and reporting information on how you use it. An Authorised Guarantee Agreement keeps the original tenant on the hook in case the assignee defaults. Following assignment, if the assignee breaches a lease covenant, then the landlord will be entitled to look to you, or the relevant successor, to make good that breach. The cookies collect information in a way that does not directly identify anyone. Most landlords will insist on an Authorised Guarantee Agreement being entered into by the previous tenant and any guarantor when application is made for licence to assign. Authorised guarantee agreement Precedents. Tenants and their guarantors are automatically released from liability to the landlord when a lease is lawfully assigned to a third party. Authorised Guarantee Agreements. There is a common misconception that selling a commercial lease will relieve the seller of liability for rent and other obligations under the lease. 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