⚠ Legal disclaimer
This article is for general information only and does not constitute legal advice. AGA obligations are highly fact-specific and depend on your exact lease terms. You should always take independent legal advice before assigning your lease or signing any guarantee agreement.
If you are a commercial tenant considering assigning your lease — transferring it to a new occupier — you may encounter a requirement to sign an authorised guarantee agreement before the landlord will give consent. For many tenants, this comes as an unwelcome surprise: you may have assumed that once you hand the lease over to someone else, your liability ends. An authorised guarantee agreement (AGA) means it does not.
Understanding exactly what an AGA commits you to, when a landlord can legitimately require one, and what you can do to limit or challenge that requirement is one of the most important things a commercial tenant can do before agreeing to an assignment. This article explains the position clearly.
What is an authorised guarantee agreement?
An authorised guarantee agreement (AGA) is a legal document by which an outgoing tenant — the person assigning their lease to a new occupier — guarantees the performance of the incoming tenant (the assignee) under the terms of the lease. In other words, if the assignee fails to pay rent, breaches any lease covenant, or falls into default, the landlord can turn to the outgoing tenant and demand that they make good the shortfall.
The AGA is a creature of the Landlord and Tenant (Covenants) Act 1995, which overhauled the law on tenant liability in commercial leases. Under the pre-1995 regime, an outgoing tenant remained liable under the original lease for its entire duration regardless of how many times it was assigned. The 1995 Act introduced automatic release from those covenants on assignment — but it also created the AGA as the mechanism by which a landlord can, in certain circumstances, require the outgoing tenant to maintain some liability for the immediate next period of ownership.
An AGA is specifically permitted under section 16 of the 1995 Act. Without that statutory authority, a requirement of this kind would be void as an attempt to circumvent the release provisions of the Act. With it, the AGA is enforceable — but only within the limits the Act imposes.
How does an authorised guarantee agreement work in practice?
When a commercial tenant assigns their lease, they will typically need the landlord’s consent under a licence to assign. That licence sets out the conditions on which consent is granted. Where the landlord requires an AGA, it will be included as a condition of the licence, and the outgoing tenant must enter into it before the assignment can proceed.
By signing the AGA, the outgoing tenant takes on the role of guarantor for the assignee. The practical effect is that if the assignee fails to pay rent or service charges, or breaches any other lease covenant, the landlord can demand payment or performance directly from the outgoing tenant rather than — or in addition to — pursuing the assignee. In the most serious cases of default, if the assignee’s lease is brought to an end through forfeiture or disclaimer, the landlord may be entitled to require the outgoing tenant to take a new lease of the property for the remainder of the original term. This is one of the most significant obligations an AGA can impose and one that many outgoing tenants do not fully appreciate when they sign. For that reason, taking specialist legal advice before assignment is essential.
What obligations does the AGA cover?
An AGA can guarantee all of the assignee’s obligations under the lease, or it can be limited in scope. The precise coverage depends on the drafting. Commonly guaranteed obligations include rent and other sums due under the lease (such as service charges and insurance rent), compliance with repair and decoration covenants, and compliance with user and alienation covenants. Some AGAs extend to all obligations under the lease without limitation; others are drafted more narrowly. The scope of the guarantee is something an outgoing tenant’s solicitor should review carefully before execution.
Importantly, the law is clear that an AGA cannot impose on the outgoing tenant any liability that is greater than, or otherwise different from, the liability under the lease itself. An AGA that purports to do so would be void to that extent.
How long does an AGA last?
The duration of an AGA is one of the most important aspects to understand, and it is one that many tenants assume works differently than it does. An AGA runs from the date of assignment until the earlier of two events: either the assignee validly assigns the lease to another party, or the lease comes to an end.
This means that in theory, if the assignee holds the lease for the remainder of the term and never assigns it, the outgoing tenant’s guarantee obligations persist for that entire period — which could be years. This is the default position and it can represent a significant long-term exposure.
The outgoing tenant’s liability does not automatically release because the assignee is a good payer for the first few years. It releases when the lease ends or when the assignee makes a further valid assignment. At that point, the outgoing tenant is discharged from the AGA — but they are not required to give a further AGA in relation to the next assignee, because their direct relationship with the lease has come to an end.
Can you negotiate a time limit on AGA liability?
Yes, in some cases. Where the parties have sufficient bargaining leverage, it may be possible to negotiate a cap on the duration of AGA liability — for example, limiting it to the period until the next rent review, or to a fixed number of years. Where such a limit is agreed, it must be clearly documented, either in the lease at the outset or in the AGA itself. Without an express time limit, the default position described above applies.
It is worth being aware that the enforceability of certain time limits may depend on whether they are agreed in the original lease or introduced later. Taking legal advice on any proposed limitation before heads of terms are agreed is the most effective point at which to negotiate this.
When can a landlord require an authorised guarantee agreement?
The legal framework distinguishes between two situations: leases where the requirement to give an AGA is built into the lease itself, and leases where the landlord seeks to impose an AGA requirement at the time of assignment.
Where the lease specifies an AGA requirement
Many commercial leases, particularly those granted after 1995, include a provision under section 19(1A) of the Landlord and Tenant Act 1927 setting out the conditions on which landlord’s consent to assignment will be given. These pre-agreed conditions commonly include a requirement that the outgoing tenant enter into an AGA. Where the lease contains such a provision, it is a contractual obligation: the outgoing tenant agreed to it when the lease was granted and must comply with it as a condition of obtaining consent.
Where the AGA requirement arises at the time of assignment
Even where the lease does not specifically require an AGA, a landlord can request one when consent to assignment is sought — provided the request is reasonable in the circumstances. The Code for Leasing Business Premises in England and Wales (the 2007 Lease Code) provides non-binding guidance on this point. It states that an AGA should not be a routine or automatic requirement on every assignment. An AGA is appropriate, under the Code, only where the proposed assignee is of lower financial standing than the outgoing tenant, or where the assignee is resident or registered outside the UK, which may make enforcement more difficult.
The Lease Code is not law, but it reflects accepted market practice and can be relevant in any dispute about whether a landlord’s conditions for consent are reasonable. A landlord who insists on an AGA in circumstances where the assignee is financially stronger than the outgoing tenant may be acting unreasonably — and an unreasonable withholding of consent, or the imposition of an unreasonable condition, can expose the landlord to liability.
If you believe a landlord is demanding an AGA unreasonably, this is a position that is worth challenging with legal support before proceeding.
An alternative: rent deposit
The 2007 Lease Code also suggests that where the proposed assignee is a smaller business or has a limited financial history, a rent deposit — a cash sum held by the landlord as security — may be an appropriate alternative to an AGA. Whether this alternative is available in any given case depends on the landlord’s willingness to negotiate, but it is worth raising in negotiations, particularly where the outgoing tenant has concerns about the long-term exposure an AGA represents.
Can an outgoing tenant be released from an AGA?
The primary mechanism for release from an AGA is the assignee making a further valid assignment of the lease. When that happens, the outgoing tenant’s liability under the AGA ends automatically. The outgoing tenant does not then give a further AGA in relation to the new assignee — their connection with the lease as a party has been severed.
There are also circumstances in which a landlord’s conduct may affect the ongoing enforceability of an AGA. If the landlord and assignee agree to vary the lease terms in a way that increases the assignee’s obligations — and do so without the outgoing tenant’s knowledge or consent — this may operate as a release of the outgoing tenant’s guarantee to the extent of that variation. This is an area where the precise facts matter significantly, and where legal advice is essential before drawing any conclusions.
One important practical point: if a landlord wishes to claim against an outgoing tenant under an AGA in respect of unpaid rent or other sums, the 1995 Act requires the landlord to serve a formal notice on the outgoing tenant within a specified period. Failure to serve that notice in time may extinguish the landlord’s right to recover that particular sum from the guarantor. An outgoing tenant who receives such a notice should take immediate legal advice.
Being asked to sign an AGA or facing a claim under one?
Whether you are about to assign your lease and want to understand your exposure, or you have received a demand from a landlord under an existing AGA, Contact Lease Lawyer for specialist commercial lease advice. We can review your position and advise on the options available to you.
What can make an authorised guarantee agreement unenforceable?
Not every AGA is necessarily enforceable as drafted. There are several grounds on which an AGA, or parts of it, may be void or unenforceable.
- The AGA imposes greater liability on the outgoing tenant than the obligations under the lease itself — this is expressly prohibited by the 1995 Act
- The agreement was not made in writing and signed by all relevant parties — AGAs must comply with the formal requirements for deeds
- The AGA was entered into under misrepresentation or duress
- The landlord has varied the lease terms in a way that increases the assignee’s obligations without the outgoing tenant’s consent — this may release the guarantor to the extent of the variation
- The landlord failed to serve the required statutory notice in time in respect of a specific claim
These are not straightforward arguments to run without a careful review of the lease, the AGA, and the facts. If you believe there may be grounds to challenge an AGA or resist a claim under one, specialist legal advice is the appropriate first step.
What outgoing tenants should do before signing an AGA
The most important thing an outgoing tenant can do is understand exactly what they are signing before they sign it. An AGA is not a formality — it is a guarantee that can expose you to significant financial liability for a substantial period after you have left the property. These are the steps to take.
Review the proposed assignee’s financial standing
Before agreeing to give an AGA in respect of any assignee, carry out proper due diligence on their financial position. Obtain accounts, credit checks, and references. If the assignee is of materially lower financial standing than you, the risk that you will be called upon under the AGA is higher, and you may wish to negotiate additional protections — or reconsider the assignment altogether.
Challenge the AGA requirement if appropriate
If you believe the landlord is requiring an AGA in circumstances that are not reasonable — for example, where the assignee is a larger and more financially robust business than you — consider challenging the requirement. An unreasonable condition on consent may not be enforceable, and a landlord who insists on it may be in breach of their statutory obligation not to unreasonably withhold consent.
Negotiate the terms of the AGA
Even where an AGA is properly required, there may be room to negotiate its terms. Consider pushing for a cap on the duration of your liability, a limitation on the obligations covered, a right to step in and take a new lease on clearly defined terms if called upon, or a requirement that the landlord serve prompt notice before making any claim. Legal advice at heads of terms stage — before positions have hardened — is where this negotiation is most effectively conducted.
Obtain indemnities from the assignee
Where you are entering into an AGA, it is standard practice to obtain a contractual indemnity from the assignee. This means that if you are called upon to make any payment under the AGA, you have a direct right to recover that sum from the assignee. The indemnity does not eliminate the risk — if the assignee is insolvent, an indemnity may be worthless — but it is an important protection to have in place.
AGA checklist: key questions for outgoing tenants
Before signing an AGA, make sure you can answer these questions:
- Does your lease specify that an AGA is required, or is the landlord requesting one at the time of assignment?
- Is the proposed assignee of equal or greater financial standing than you? If so, is the AGA requirement reasonable?
- Is your AGA liability time-limited, or does it run to the end of the lease term?
- Does the AGA cover all lease obligations, or is its scope limited?
- Do you have a deed of indemnity from the assignee in place?
- Have you taken specialist legal advice on the terms before signing?
For a detailed overview of the statutory framework, the Landlord and Tenant (Covenants) Act 1995 on legislation.gov.uk sets out the legal basis for AGAs and the protections that apply to outgoing tenants
Speak to a specialist commercial lease solicitory
AGAs are among the more technically complex areas of commercial lease law, and the consequences of signing one without proper advice can be significant and long-lasting. At Lease Lawyer, we advise outgoing and incoming tenants, as well as landlords, on all aspects of lease assignment — including AGA requirements, negotiation, and challenges. If you are about to assign your lease or have been asked to sign an authorised guarantee agreement, we can help you understand your position before you commit to anything.
Get in touch for clear, practical advice from a specialist commercial lease solicitor.