For those who are entering into a commercial lease, or commercial landlords who are leasing their premises, Authorised Guarantee Agreements can instil responsibilities on the parties involved. This may amount to obligations found within the tenancy agreement that persist after the lease has been reassigned. In these cases, the Authorised Guarantee Agreement can represent a large risk for commercial tenants. This article is designed to provide relevant information for both landlords and tenants surrounding AGAs.
What is the purpose of an Authorised Guarantee Agreement(AGA)?
As suggested by the name, an AGA acts as a guarantee that a new commercial tenant will fulfil their obligations under the tenancy agreement. This could include actions such as rental payments or maintenance works if that’s covered by the lease. As such, it’s important that the outgoing tenant takes time to consider their position and the party they are assigning the commercial lease to.
Under UK law, an AGA must comply with regulations set out in the Landlord and Tenant (Covenant) Act 1995. This includes that:
- The agreement must be entered into circumstances set out in section 16(3) of the Act.
- The provisions of the agreement must be in compliance with the Act.
- The inbound tenant must guarantee the performance of the obligations that the outbound tenant has been released.
Who provides an AGA?
The need for an Authorised Guarantee Agreement arises when tenancy of a commercial property changes, resulting in the lease being assigned to another party. This typically requires consent from the landlord, with an AGA possibly being included as a condition for consent to be given. The provisions outlined within the tenancy agreement will ultimately dictate who is legally required to provide an AGA. Although it is stated in the Code for Leasing Business Premises in England and Wales 2007 that landlords should only require an AGA in cases where the new tenant is deemed financially weaker than the outgoing one.
Considerations for AGAs and commercial leases
There are a number of questions you may have regarding Authorised Guarantee Agreements. While we consider these to be among the most common, there will always be scenarios that require bespoke legal advice.
- How long does an AGA last? – Liability under an AGA lasts until either the lease expires or the tenant assigns the lease to another party, whichever comes first.
- What are the implications of an AGA? – in cases where an AGA is issued early in a long term commercial lease (15-20 years), the associated liability could continue for years.
- Does an AGA always feature in a commercial lease transfer? – an AGA will only apply to leases issued after January 1996. So if you have a long term commercial property lease, you may not have to worry about these agreements at all.
For these reasons and many more, it’s important to seek expert advice when entering into a lease at the end of the commercial conveyancing process. A commercial property solicitor is able to pick out any features of the lease which could be cause for negotiation.
Need a commercial property solicitor?
For professional legal advice in relation to a variety of areas within property conveyancing, choose Toomey Legal as your partner. There are many obligations, such as those within Authorised Guarantee Agreements, that are simply designed to protect responsibilities outlined during a transfer of property. Our team makes you aware of all the implications at every stage in the commercial conveyancing process so you can be sure you’re making the right decision. Get in touch today to discuss your situation.