Assignment of Lease and Authorised Guarantee Agreement (“AGA”)

A tenant who wants to assign (transfer) a lease must check its terms to see whether or not this is permitted.

Usually the assignment of the whole of the property let under a lease is permitted provided the tenant obtains the landlord’s consent.

A lease will usually contain a provision that such consent should not be unreasonably withheld or delayed but will also set the conditions which need to be met before the consent is provided to assign a lease.

One of the main conditions, which a landlord will require prior to granting the tenant consent to assign a lease, is that the tenant guarantees the future performance of the new tenant by giving an AGA to the Landlord.

This means that the tenant must guarantee that the assignee will comply with the covenants in the lease. This will include all covenants to pay rent and to keep the property in repair.

Risks of Transferring a Lease

As a tenant it is important to understand the risks in agreeing to provide an AGA when you assign a lease. It is always worth asking the landlord to dispose of this requirement, in particular where the covenant strength of the assignee is greater than the tenant’s or where the landlord is collecting a rent deposit from the assignee.

If the tenant is assigning to an assignee with a weaker covenant strength, a landlord will insist on an AGA being entered into. The risk to the tenant is that the assignee may fail to comply with the covenants, which means the landlord can pursue the tenant for compliance. This could mean the Tenant is forced to pay rent, repair the demised premises and anything else under the lease, which could become rather costly for a tenant.

In the event the lease is disclaimed after the insolvency of the assignee, the landlord can request the tenant to enter into a new lease. This would of course defeat the purpose of the tenant disposing of the lease in the first place.

The final point is that in the event the lease benefits from security of tenure under the Landlord and Tenant Act 1954, the AGA may continue beyond the end of the contractual term. The tenant could potentially be guaranteeing the assignee’s compliance with the covenants for an indefinite period of time. It is therefore suggested that the tenant seeks to limit its obligation under the AGA only until the end of the contractual term, and not any “holding over” period.

Have a question about transferring a lease?

You can contact a member of our Commercial Property Law team and they will be happy to help.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

Anna Svensson
Senior Solicitor, Real Estate
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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