An authorised guarantee agreement (AGA) is an important legal document that can have lasting financial and legal consequences for commercial tenants. If you’re considering assigning your lease, understanding how AGAs work, when they’re required, and how to negotiate their terms is crucial. In this guide, we explore AGAs in detail, including key clauses, risks, and practical steps to take before signing.
What is an authorised guarantee Agreement (AGA)?
An authorised guarantee agreement (AGA) is a legal document that helps protect landlords when a commercial tenant transfers their lease to someone else. It ensures the outgoing tenant (the one leaving) remains responsible for the lease if the new tenant doesn’t meet their obligations.
How does it work?
When you rent a commercial property, you agree to things like paying rent and maintaining the space. If you decide to transfer (assign) your lease to someone else, an AGA comes into play.
By signing an AGA, you agree to act as a guarantor for the new tenant.
This means if they fail to pay rent or break the lease terms, you could still be responsible.
In some cases, if the new tenant defaults and the lease ends, the landlord may require you to take on a new lease with the same terms.
An AGA gives landlords extra security while allowing tenants to transfer their lease - but it’s important to understand the ongoing responsibilities before signing.
How long does it last?
An AGA typically lasts from the moment the outgoing tenant (the person transferring the lease) hands over their lease to the new tenant (the assignee) until one of the following happens:
The new tenant transfers the lease to another party.
The lease comes to an end naturally.
Whichever happens first will end the outgoing tenant’s liability under the AGA.
Can an AGA have a time limit?
Yes, in some cases, tenants may be able to negotiate a time limit on their liability under an AGA. This depends on their bargaining power when agreeing to the lease terms. If a time limit is agreed upon, it must be clearly stated in one of two places:
In the lease itself, if agreed at the start.
In the AGA, if agreed later, when the landlord consents to the lease transfer.
Including a time limit protects the outgoing tenant by ensuring they won’t remain responsible for the lease indefinitely. Without one, their liability continues until the lease ends or the new tenant assigns it to someone else. It’s always a good idea to get legal advice from a lease assignment solicitor beforehand to understand your ongoing obligations and any potential risks.
When is an authorised guarantee agreement required?
An AGA isn’t always necessary, but landlords often request one to protect their interests when a tenant transfers (assigns) their lease.
When should a landlord ask for an AGA?
According to the Code for Leasing Business Premises in England and Wales (2007), landlords should only require an AGA if:
The new tenant (assignee) has a weaker financial standing than the outgoing tenant.
The new tenant is based overseas, which could make it harder to recover unpaid rent or enforce lease terms.
For smaller tenants, the code suggests that instead of requiring an AGA, landlords could ask the new tenant to provide a rent deposit as security. This can be a fairer alternative, particularly when the new tenant has limited financial history or is based outside the UK.
Can tenants negotiate whether an AGA is required?
Yes, tenants may be able to negotiate a clause in the lease stating that an AGA will only be required if it is 'reasonable in the circumstances' at the time of assignment.
Without this clause, a landlord could insist on an AGA even if the new tenant is financially stronger than the outgoing tenant.
Including it gives the outgoing tenant more protection and reduces the risk of being tied to the lease unnecessarily.
Do you have to agree to an AGA?
If a commercial lease has a strict rule against assignment, the landlord can always require an AGA. If there's a flexible rule against assignment, where the tenant needs the landlord's approval to assign, the landlord can only demand an AGA if it's explicitly stated as a condition for approval. If the landlord hasn't explicitly stated an AGA as a condition, they can still require one if it's reasonable to do so.
Key clauses in an AGA
An AGA includes several important clauses that outline the guarantor’s responsibilities, limitations, and the landlord’s rights. Here’s a breakdown of the key terms to know:
1. Guarantee obligations
The outgoing tenant (guarantor) promises to cover the new tenant’s lease obligations if they fail to meet them.
This usually includes paying rent and other sums due under the lease.
In some cases, the guarantor may also be required to take on a new lease if the original lease is terminated due to the new tenant’s default.
2. Duration and scope
Specifies when the guarantee becomes effective and how long it lasts (typically until the new tenant assigns the lease again or the lease term ends).
3. What obligations are guaranteed?
Defines whether the AGA covers only rent or extends to all lease obligations, including service charges, repairs, and compliance with lease terms.
4. Restrictions on the guarantor
Prevents the outgoing tenant from being released from their guarantee without the landlord’s consent.
May limit the guarantor’s ability to seek repayment from the new tenant if they have to cover costs.
Often restricts the guarantor from taking security or financial guarantees from the new tenant.
5. Landlord’s rights
The landlord can take action against the guarantor without first having to chase the new tenant for unpaid rent or other breaches.
The landlord has the right to make multiple demands under the guarantee, meaning the guarantor may be called upon more than once if issues arise.
6. Clear definitions of guaranteed obligations
Ensures the obligations under the AGA align with the original lease terms.
Includes provisions for release from liability if certain conditions are met, such as a permitted lease assignment.
If negotiated, may include caps or limitations on the guarantor’s liability to provide some protection.
What can make an AGA invalid?
An AGA might be deemed invalid in certain situations, such as:
The agreement does not follow the rules laid out in the Landlord and Tenant (Covenants) Act 1995.
The terms of the agreement are unfair, especially if they heavily favour one party.
The AGA is entered into based on misrepresentation or under duress (coercion or pressure).
The agreement goes against public policy or legal principles.
The agreement wasn't made with the required formalities like being written and signed by everyone involved.
The AGA is used for illegal purposes or involves unlawful activities.
By law, an AGA can't impose more liability on the outgoing tenant than what's in the lease. Getting legal advice from a commercial property solicitor can help you steer clear of these risks and ensure that, as a tenant, you're only agreeing to what's lawful and necessary.
What are the implications of authorised guarantee agreements?
An AGA carries serious legal and financial consequences for everyone involved, particularly the outgoing tenant. Before signing, it’s important to understand the risks and long-term responsibilities.
1. Ongoing legal responsibility
One of the biggest implications of an AGA is that the outgoing tenant remains legally responsible for the commercial lease obligations even after transferring the lease to a new tenant. If the new tenant fails to meet their responsibilities - such as paying rent or maintaining the property - the landlord has the legal right to demand that the outgoing tenant steps in to cover unpaid amounts or resolve any breaches. This can lead to unexpected financial burdens, even after the tenant has left the premises.
2. Financial risks
If the new tenant falls into arrears or fails to meet their financial obligations, the outgoing tenant may have to cover unpaid rent, service charges, or repair costs. This can create significant financial strain, particularly for small businesses or individuals who may not have the resources to absorb these additional costs. Furthermore, having to make payments under an AGA could affect the outgoing tenant’s financial standing and make it harder to secure future commercial leases. Landlords may view them as a higher-risk tenant if they have been called upon to fulfill AGA obligations in the past.
3. Understanding the liability period
The length of time an outgoing tenant remains liable under an AGA depends on the specific terms agreed upon. Some AGAs last for a fixed period, providing a clear end date for the tenant’s obligations. However, others continue until the lease naturally expires or until the new tenant assigns it again to another party. Without a defined time limit, the outgoing tenant could be tied to financial liabilities for much longer than anticipated. To reduce risk, tenants should negotiate a clear timeframe for their liability before signing the agreement.
4. Security of tenure
For leases that include security of tenure, tenants should be especially cautious, as the AGA could extend beyond the original lease term. Security of tenure allows tenants to continue occupying the property after the lease expires, meaning the AGA could still apply if the new tenant remains in the premises under a "holding over" period. This can create ongoing uncertainty for the outgoing tenant, who may not know exactly when their liability ends. To prevent this, tenants should ensure that the AGA does not extend into any holding over period, so they have a definite end date for their responsibilities.
The role of AGAs when negotiating heads of terms
Before a formal lease is drawn up and signed, the heads of terms, also known as a letter of intent or memorandum of understanding, lay out the main commercial responsibilities. At this stage, an AGA becomes an important topic for discussion.
During negotiations, parties agree on key aspects like rent, lease duration, and other main terms. They also discuss whether the lease can be transferred and, if so, under what conditions. If the landlord wants extra protection in case of a transfer, they might bring up the possibility of an AGA.
This negotiation phase allows tenants to propose alternatives to AGAs, such as paying a deposit. This gives both parties a chance to find a solution that suits them. Regardless of the outcome, the heads of terms should clearly outline the tenant's responsibilities if they transfer the lease, whether through an AGA or another agreed-upon method.
What precautions should outgoing tenants take before entering into an AGA?
Before entering into an AGA, outgoing tenants should first check if the landlord can automatically require them to do so. If not, it is a good idea to be sure the request for an AGA is reasonable.
Further to this, outgoing tenants should:
Make sure the AGA doesn't extend their liability beyond the lease term;
Seek assurances from the new tenant that they will not breach the list.
If a landlord asks an outgoing tenant to fulfill their AGA obligations, they should first check if there have been lease changes, as this may release them from their obligations.
10 top tips when negotiating lease terms
Negotiating your lease terms can greatly impact your business success. Here are some handy tips to help you get the best deal:
Understand your business needs and goals to make sure the lease fits your operational requirements;
Carefully review the heads of term, including rent, lease duration, and any special conditions;
Look at the lease length and break clauses, which allow early termination if needed;
Discuss a rent structure that fits your budget and future business growth plans;
Ensure repair and maintenance responsibilities are fair and reasonable;
Negotiate terms for assigning or subletting the lease;
Explore alternatives to AGAs and negotiate fair arrangements;
Check service charges and other costs, including potential changes over time;
Conduct thorough property checks, including surveys and inspections;
Document everything in writing to avoid misunderstandings.
Final thoughts
Successful negotiations should aim to strike a balance between your needs and the landlords. Negotiating favourable terms upfront can greatly benefit you and your business in the long run.
For personalised help in negotiating a commercial lease or navigating AGAs, get in touch with us today. Our commercial property solicitors offer accessible, expert advice and services for fixed fees.
