Authorised Guarantee Agreements: A Practical Guide for Commercial Landlords and Tenants

Authorised Guarantee Agreements (AGAs) are a common feature of commercial lease assignments and can have significant financial implications for both landlords and tenants.

If you are a tenant assigning your lease, an AGA may mean you remain financially responsible if the incoming tenant fails to comply with the lease. For landlords, an AGA offers additional protection where a lease is transferred to a new tenant.

This guide explains what AGAs are, when they may be required, the risks involved, and how both landlords and tenants can protect their position.

What is an Authorised Guarantee Agreement?

An Authorised Guarantee Agreement is a legal agreement entered into when a commercial tenant assigns (transfers) its lease to another party.

Under an AGA, the outgoing tenant guarantees that the incoming tenant will comply with the lease obligations. These typically include payment of rent, service charge and insurance contributions, keeping the property in repair, and complying with all other lease terms.

If the incoming tenant defaults, the landlord may be able to pursue the outgoing tenant under the AGA.

Importantly, an AGA does not usually impose indefinite liability. The outgoing tenant’s obligations generally continue only while the immediate assignee remains the tenant. Once that assignee lawfully assigns the lease, the outgoing tenant is typically released from future liability, although liability for sums already due may remain.

AGAs were introduced in Section 16 of the Landlord and Tenant (Covenants) Act 1995 to balance the interests of landlords and tenants. While tenants are generally released from future liabilities on assignment, landlords retain the ability to require an AGA where it is reasonable to do so.

Why are AGAs important?

AGAs can have substantial financial consequences.

For tenants, assigning a lease does not necessarily provide a clean break. If the incoming tenant later defaults, the outgoing tenant may still face a claim.

For landlords, an AGA provides an additional layer of security, particularly where the financial strength of the incoming tenant is uncertain.

AGAs should therefore be considered carefully at two key stages: when negotiating the original lease and when dealing with a proposed assignment.

Can a landlord require an AGA?

A landlord does not have an automatic right to require an AGA in every case.

Whether an AGA can be required will depend primarily on the terms of the lease and the circumstances of the proposed assignment.

Most modern commercial leases contain an “alienation” clause governing assignments, underletting and other dealings. If the lease expressly states that an AGA is a condition of consent to assignment, the landlord will usually be entitled to insist on one.

If the lease is silent or less prescriptive, a landlord may still request an AGA, but only where it is reasonable in the circumstances. This will often depend on the financial standing of the proposed assignee.

When is an AGA likely to be reasonable?

An AGA is more likely to be considered reasonable where the incoming tenant presents a higher financial risk.

This may include situations where the proposed assignee is a newly incorporated company, has limited trading history, weak financials, poor credit, limited UK assets, or is unable to provide satisfactory references.

Landlords will often request financial information such as accounts, bank references or trading history before deciding whether to grant consent and whether to require an AGA.

Each case will turn on its own facts. If the incoming tenant is financially strong, or alternative security is offered (such as a rent deposit or guarantor), it may be more difficult for a landlord to justify requiring an AGA.

Key features of an AGA

While the wording varies, most AGAs include several core elements.

• The outgoing tenant acts as guarantor, promising that the incoming tenant will comply with the lease. If the incoming tenant defaults, the landlord may pursue the outgoing tenant directly.
• Liability is usually time-limited, ending when the immediate assignee ceases to be the tenant (subject to any accrued liabilities).
• AGAs commonly include an indemnity in favour of the landlord, requiring the outgoing tenant to cover losses, arrears, costs or damages arising from the incoming tenant’s breach.

The precise wording is critical, and tenants should fully understand the scope of their liability before entering into an AGA.

How tenants can reduce AGA risk

The most effective protection is at the lease negotiation stage.

While commercial terms such as rent and term are important, assignment provisions can have long-term consequences. A broadly drafted alienation clause may leave a tenant exposed to future liabilities.

Tenants should consider negotiating wording that limits AGAs to circumstances where they are reasonable, rather than allowing them as an automatic condition of assignment.

It may also be possible to agree objective criteria, such as financial thresholds or alternative security arrangements, which—if satisfied—remove the requirement for an AGA. This can provide greater certainty and facilitate a cleaner exit.

Managing risk on assignment

If a lease already requires an AGA, there are still practical steps tenants can take.

An outgoing tenant can seek an indemnity from the incoming tenant, allowing recovery of any sums paid under the AGA. While this does not prevent a landlord claim, it provides a contractual right of reimbursement.

Additional security, such as a rent deposit or guarantee, may also be appropriate, particularly where there are concerns about the incoming tenant’s covenant strength.

In some cases, a sublease may be considered as an alternative to assignment. This is not always suitable and carries its own risks, so legal advice should be taken before proceeding.

What happens if the incoming tenant defaults?

If the incoming tenant breaches the lease, the landlord may seek to enforce the AGA against the outgoing tenant.

For fixed charges such as rent, service charge and insurance rent, the landlord must usually serve a notice under section 17 of the Landlord and Tenant (Covenants) Act 1995.

This notice must be served within six months of the sum becoming due. Failure to comply with this time limit may prevent recovery from the former tenant for that particular sum.

This requirement is significant for both parties. Landlords must monitor arrears and act promptly, while former tenants should scrutinise any demand to ensure it is valid.

The right to an overriding lease

If a former tenant receives a valid section 17 notice and pays the sums due, it may have the right to request an overriding lease.

This places the former tenant between the landlord and the defaulting tenant, enabling greater control over the property and potential recovery from the defaulting tenant.

This is a technical area and urgent legal advice should be sought if a section 17 notice is received.

Other risks to consider

Liability under an AGA is not limited to rent.

Depending on the drafting, an outgoing tenant may also be liable for breaches relating to repair, maintenance and dilapidations. For example, failure by the incoming tenant to maintain the property could result in a significant claim against the outgoing tenant.

Additional complexity may arise if the incoming tenant enters administration or liquidation. In such cases, both landlords and former tenants should seek advice promptly.

How we can help

The Jonathan Lea Network advises both landlords and tenants on commercial lease assignments, AGAs and related matters.

Commercial lease assignments often proceed quickly, but it is important not to overlook long-term risk. Early advice can help avoid unexpected liabilities and protect your commercial position.

If you are negotiating a lease, assigning an existing lease, or dealing with an AGA or section 17 notice, our commercial property solicitors can assist.

We provide enquiries with an indicative scope of work and fee estimate, based on the information you share. We aim to respond within one working day.

In the same email, you will be invited to arrange a 20-minute complimentary, no-obligation video consultation, should the proposed scope of work and fee estimate be of interest. This initial discussion is designed to better understand your requirements, refine the scope, and ensure our approach is fully aligned with your objectives.

Where you would prefer to receive initial advice and guidance from the outset, we may instead recommend a fixed-fee consultation (from £250 + VAT) as a more appropriate starting point. This enables us to provide considered, tailored advice at an early stage.

To enquire, please email us at wewillhelp@jonathanlea.net, complete our contact form, or call us on 01444 708640.

VAT is charged at 20%.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.