Authorised Guarantee Agreements (AGAs) – what are they and what can you do about them?

So, what are AGAs?

Many commercial leases allow the tenant to assign (transfer) their interest in the lease to a third party.  However, this right often comes with conditions (such as ensuring all rent is paid up to date) and requirements for security (such as a rent deposit from the incoming tenant) to protect the landlord’s position.

One of these conditions is the requirement for the outgoing tenant to enter into an AGA with the landlord where the outgoing tenant effectively becomes a guarantor for the incoming tenant’s obligations under the lease.  This means that if the outgoing tenant defaults on their lease obligations, the landlord can require the outgoing tenant to fulfil these or if the incoming tenant becomes insolvent a landlord can sometimes require a previous tenant to take a new lease.

The need for an AGA

The outgoing tenant and landlord should think carefully before an AGA is entered into.  For the outgoing tenant, it could mean they remain potentially liable for the lease obligations for the duration of the lease term.  For the landlord, the guarantee may not be worth its weight if given by a limited company which could fall into financial trouble post-assignment.

One way is to review whether an AGA is necessary if, for example, the incoming tenant is of equal or greater financial strength as the outgoing tenant.  Sometimes, leases require AGAs only where it is reasonable which gives some room for negotiation and risks the landlord being in breach of their own lease obligations if they refuse to grant assignment in these circumstances or take an unreasonable amount of time to decide on an assignment request.

AGA Negotiations

If an AGA is required, the parties may be open to negotiate amendments to the AGA provisions to increase or limit the scope of liability on the outgoing tenant, such as the length of the liability period (which only applies until the earlier of a further assignment or the end of the lease (whichever is easier). The parties may be willing to agree alternative security for the assignment such an increased rent deposit paid by the incoming tenant.

What if negotiations don’t work?

Ultimately, negotiations rest on the relative bargaining strength of the parties involved and if these cannot be resolved at the negotiating table, the parties have the option to carry out dispute resolution (if permitted under the lease) or go to the Land Tribunal to force a decision.

Next steps

If you’re a tenant and need a lawyer to help you exit a lease or a landlord looking for assistance to bring in a new tenant, please don’t hesitate to get in touch with myself or one of my colleagues in our Commercial Property or Property Disputes teams and we will see how we can help.