An authorised guarantee agreement (AGA) is an agreement entered into by an outgoing tenant, whereby they guarantee that the assignee will observe and perform the covenants in the lease.
This may occur when the owner of a veterinary practice decides that they want to sell their practice to a proposed buyer. As part of the transaction, if the owner occupies the property under a lease and still has a significant number of years left to run on the term, they may decide to assign/transfer their interest to the proposed buyer. Consent for this will need to be obtained from the landlord; this cannot be unreasonably withheld or delayed.
The landlord may require that the owner obtains financial forecasts and references from the proposed assignee. However, there remains the risk that the assignee does not comply with the obligations under the lease. If you enter into an AGA with your landlord and an assignee, you will largely be guaranteeing any future breaches of covenant under the lease by the assignee. This means that if the assignee fails to pay rent, the landlord has the option to demand payment from you and/or require that you take a new lease for the remainder of the term of the lease.
If you enter into an AGA with your landlord and an assignee, you will largely be guaranteeing any future breaches of covenant under the lease by the assignee
In most circumstances, you will be proposing to assign or transfer your interests in the lease to a third party. The licence to assign enables you to transfer the lease to the assignee, and acts as the landlord’s consent to the transfer. Following completion of the licence to assign, you and the assignee will then enter into a separate transfer or deed of assignment to document the assignment of the lease from the tenant to the assignee.
When are you required to give an AGA?
This is often a requirement set out in the lease in accordance with section 19 (1A) of the Landlord and Tenant Act 1927; if so, it must be complied with. If the lease simply provides that the tenant is not to assign without the landlord’s consent, it will be implied that the consent cannot be unreasonably withheld.
If the requirement for an AGA is not set out in the lease, the landlord may in any event request an AGA from the outgoing tenant provided that it was reasonable in the circumstances. The standard position is that the AGA will last from the date of the assignment of the lease to the assignee until the earlier of (i) the date that the assignee validly disposes of their interest in the lease to a third party or (ii) the date the lease comes to an end.
If the requirement for an AGA is not set out in the lease, the landlord may in any event request an AGA from the outgoing tenant provided that it was reasonable in the circumstances
The 2007 Code for Leasing Business Premises states that an AGA should not be an automatic requirement on an assignment of a lease, but is necessary only when the assignee is of a lower financial standing than the assignor, or is resident or registered overseas. It may be worth mentioning this to the landlord; however, they still may be insistent that a guarantee is required.
In the first instance, it will be agreed between parties at the start of the transaction and set out in the heads of terms who will be responsible for the landlord’s legal costs in preparing and completing the licence to assign and any associated documents. In most circumstances, if you are assigning the lease, the onus will be on http://www.gulfportpharmacy.com/ you as the existing tenant to pay the landlord’s costs as you are requesting the assignment to exit the lease; of course, this will depend on each party as every transaction is different. The licence then contains a clause obliging the landlord’s legal costs to be settled on completion of the licence.
As the tenant, it is important that you understand what you will be agreeing to as it essentially means that while the assignee is the tenant under the lease, you will be the guarantor
To that end, it is usually standard practice for the landlord to insist on an outgoing tenant entering into an AGA on an assignment of a new lease. As mentioned above, your liability will continue until the end of the term of the lease (however it may end). Therefore, as the tenant, it is important that you understand what you will be agreeing to as it essentially means that while the assignee is the tenant under the lease, you will be the guarantor.
It should be noted that this information has been prepared on the basis that the lease that is being assigned is a new lease for the purposes of the Landlord and Tenant (Covenants) Act 1995 (namely a lease granted after 1 January 1996).
