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Authorised Guarantee Agreement - what is it and how does it work?



Wed 3 January 2024 Authorised Guarantee Agreement - what is it and how does it work?

What is an Authorised Guarantee Agreement?

An Authorised Guarantee Agreement (AGA) is a form of guarantee where an existing tenant of a commercial lease agrees to guarantee the tenant’s obligations if he/she/they transfer the lease part way through.

Where the original lease provides, as is common, that the outgoing tenant must enter into the AGA, there are few options to try and negotiate.

An AGA acts as a safety net for landlords, offering an additional layer of security in case the new tenant (assignee) defaults on their lease obligations.

An AGA is a legally binding agreement between three parties:

What happens if the original lease does not include the requirement for an AGA?

The terms of the lease , even where it is silent about an AGA, will almost certainly state that the Landlord has the right to reasonably refuse consent to an assignment of it. This means the Landlord, to protect his/her/their interest may still require the outgoing tenant to enter into an AGA guaranteeing the performance of the assignee's lease obligations.

Ultimately, whether an AGA is required as part of the negotiations on Landlord’s consent, depends on several factors, including:

Key Provisions of an AGA

Risks for the Tenant

Entering into an AGA, where it might possibly be avoided (see below) can significantly impact the outgoing tenant due to ongoing and uncertain financial Liability. If the assignee breaches the lease covenants and fails to fulfil their obligations, the outgoing tenant becomes liable for damages and potentially legal fees.

 


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