An overview of what an Authorised Guarantee Agreement is and what it is used for in the context of property transactions.
What is an Authorised Guarantee Agreement?
An authorised guarantee agreement (‘AGA’) is a legal document comprising a form of guarantee given by an outgoing tenant (or assignor) to a landlord, promising to guarantee the performance of the lease obligations by the incoming tenant (assignee) after a commercial lease has been lawfully assigned. If the assignee subsequently defaults under the lease, the outgoing tenant may be liable to perform the lease obligations or even compensate the landlord for losses incurred.
The purpose of an AGA is to balance the outgoing tenant’s liability so that the tenant is only responsible for the performance of their immediate assignee, meaning that an AGA cannot include liability in respect of a successor in title of the assignee. AGAs were introduced by the Landlord and Tenant (Covenants) Act 1995 (‘LTCA 1995’), which also includes broad anti-avoidance provisions so that any attempts to exclude or modify the operation of any the Act’s provisions within an AGA are voided.
When is an Authorised Guarantee Agreement typically used?
These agreements are typically entered into as a condition of the landlord’s formal consent to the assignment of the lease and will endure so long as the immediate assignee remains the tenant. An AGA may include a requirement for the outgoing tenant to enter into a new lease if forfeiture or surrender of the lease occurs.
Who pays for it?
It is standard practice for the outgoing tenant to pay for the landlord’s legal costs (including the drafting of the AGA) and any of their own legal fees, as a condition of obtaining the landlord’s consent to assign the lease.
It should be noted, however, that this is variable and in some instances each party will be responsible for their own costs, and sometimes one party will pay the whole of the other’s legal costs or indeed give a contribution towards the same.
What does an Authorised Guarantee Agreement cost?
There is no fixed cost for an AGA, but it is essential to check the lease wording, obtain fee quotes in advance, and be alert to the complexity of the transaction. Any of these factors can contribute to a legal fee being higher than expected.
Does an Authorised Guarantee Agreement need registering?
An AGA is a personal covenant between the outgoing tenant and the landlord and thus is a contractual obligation that does not itself create or transfer a legal interest in a property. The assignment of a lease itself must be registered at HM Land Registry wherever the lease is a registrable disposition (with a term of seven years or more), but there is no requirement to register the AGA as a separate document. Nonetheless, it may be referred in the accompanying transfer or assignment deed.
Who drafts an Authorised Guarantee Agreement?
Typically, an AGA will be prepared by the landlord’s legal representative as it is a document the landlord requires to protect their interests when consenting to an assignment of a lease. The landlord therefore needs to ensure the AGA is drafted in terms acceptable to them and which comply with the requirements of both the LTCA 1995 and any relevant lease provisions. The outgoing tenant’s solicitor will then review, negotiate and advise on the terms of the draft AGA to ensure it accurately reflects the lease requirements.
Authorised guarantee agreements are formal legal documents which include obligations and liabilities that can have long-term impacts on either party. Procuring legal advice helps reduce the risk of any disputes later in the assignment process. If you require assistance with an authorised guarantee agreement, please do get in touch with our Real Estate Team who would be happy to assist.
This article is for information only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0118 951 6200.
