Guide to our Authorised Guarantee Agreement

Posted by David Cammack on 8th May 2015

This guide leads you through the clauses in our Authorised Guarantee Agreement template (or AGA).

That agreement is for use in relation to the assignment of the balance of a lease of commercial premises to another tenant, who is called “the assignee”. Most landlords will require that the tenant signs the AGA before the landlord consents to the tenant’s assigning the lease.

It only applies where the lease is classed as a “new lease” by the Landlord & Tenant (Covenants) Act 1995 (i.e. generally one dated 1st January 1996 or later, but see the guide for more details). For a “new lease”, the landlord will need the tenant signing the AGA as a separate document in most cases.

You ought to use the draft of the AGA from the lease, but if that version isn’t accepted by the tenant now or is unavailable, then use this template AGA. The agreed form of the AGA should be inserted into the schedule to the licence to assign, as well as being printed off and signed separately.

This AGA incorporates various options, so it is appropriate where:

1. there was or was not someone guaranteeing the tenant’s obligations under the original lease; and

2. there is or is not an option to extend the lease on expiry (known as “security of tenure”).

Legalo’s template AGA will not be needed for an “old lease” under the Act: i.e. when the first tenant is still liable after assigning the lease, so there is no need for an AGA.

Clauses of this AGA

Date – Insert just the year at this stage. Handwrite the rest of the date in the AGA once all the parties have signed it.

Party clauses – You will need to insert the names and addresses of parties 1 & 2 (the landlord & the tenant). If there was a guarantor of the tenant’s obligations in the original lease, then insert the name and address as party 3, otherwise delete the latter.

Background

(B) You can delelte paragraph B, if there was no guarantor of the original lease.

Numbered clauses of this template

1. Interpretation – This clause defines the main terms used in the AGA.

  • Guarantee – this should either define the Guarantee as “the Lease” if the guarantor was a party to the lease and there was no other separate guarantee document, or please set out details to identify the guarantee (you can follow the format used in the definition of “the Lease”). If there was no guarantor of the lease, delete this whole definition.
  • Lease – complete the details.
  • Licence to Assign – complete the date – this should be the same date the AGA is signed and dated.
  • Property – insert the name of the property, preferably with full postal address. If it is only part of a building, make it clear which part/parts.
  • LTA 1954 – if there’s no option to renew the lease on expiry under the Landlord & Tenant Act 1954, then delete the definition.

2. Guarantee and indemnity – this clause is the heart of the AGA – that the tenant guarantees performance of the lease by the assignee for the remainder of the term. In 2.3, if there’s no option to renew the lease on expiry under the Landlord & Tenant Act, then remove the phrase in brackets on line 2.

3. Variations, etc – In 3.2.1, if there’s no option to renew the lease on expiry under the Landlord & Tenant Act, then remove the phrase in brackets.

4. New lease for the tenant – Complete the period in clause 4.1 – the period shouldn’t be longer than the period set in the original lease for the landlord to serve notice on the guarantor to take a new lease if the original lease is disclaimed by the tenant. If there’s an option to renew the lease on expiry under the Landlord & Tenant Act, then delete 4.2.5 and the whole of 4.7. Otherwise the statutory notice must be served on the tenant by the landlord before the tenant enters into this AGA (as it might lead to the tenant having to take a new lease), and the tenant must make the declaration acknowledging receipt of that notice in the statutory form as well. Then remove the square brackets around clauses 4.2.5 and 4.7. In 4.7.1 select if the landlord’s notice was served not less than 14 days before the AGA is signed or not; and in 4.7.2 insert the date and whether the tenant’s declaration was an ordinary declaration or a statutory declaration. In two places in 4.5.1, check if the reference to the market rate of rent is the correct reference under the lease’s rent review clauses and amend if necessary.

5. Priority to the landlord – The main part of this clause provides that, until the landlord has been paid in full under this guarantee, the tenant is not to have any claim against the assignee.

6. Landlord’s costs – this clause presumes that the tenant is paying the landlord’s legal and other costs of issuing the AGA (as part of the licence to assign), i.e. where the lease contained an obligation to pay them, as a condition of the consent being given. Insert the amount. If there’s no VAT to be paid on them, delete the words “plus VAT” on line 1.

7. Indemnity – The tenant is responsible if there’s a breach of this AGA.

8. Guarantor – If there was no guarantor of the lease, delete this whole clause. Clauses 8.1.3 and 8.1.4 provide that the tenant’s guarantor, who is guaranteeing the tenant’s performance of the lease, now also guarantees the performance of this AGA by the tenant – you should only include this where the guarantee stated that it covered the tenant’s liability under any future AGA. If not, remove clauses 8.1.3 and 8.1.4.

9. Tenant’s liability – This clause states that the tenant remains on the hook for the guarantee despite, for example, any delay in enforcing the lease by the landlord. If the tenant’s not more than one person, then delete clause 9.1.6.