Authorised Guarantee Agreement (AGA) UK — Landlord's Guide

What Is an Authorised Guarantee Agreement?

Under s.16 Landlord and Tenant (Covenants) Act 1995 (L&T(C)A 1995), when a commercial lease is assigned, the outgoing tenant is automatically released from the tenant covenants of the lease on the assignment. This ended the common law privity of contract liability that had bound original tenants for the full term under old leases. However, the 1995 Act allows the landlord to require the outgoing tenant to enter into an AGA as a condition of consent to the assignment. The AGA guarantees the incoming tenant's performance of the tenant covenants — but only for the period during which the assignee remains the tenant. An AGA can also include an obligation for the outgoing tenant to take a new lease if the assignee's lease is disclaimed on insolvency — protecting the landlord from a gap in liability during the assignee's insolvency. Old law leases (granted before 1 January 1996) are not subject to L&T(C)A 1995: original tenants in pre-1996 leases remain liable throughout the full term under privity of contract.

• Release on assignment: under L&T(C)A 1995, outgoing tenants in new leases (granted on or after 1 January 1996) are automatically released from tenant covenants on assignment — the landlord's principal protection is the AGA
• AGA as condition of consent: the landlord can require an AGA as a condition of giving consent to assignment — expressly permitted by s.16(3) L&T(C)A 1995 where it is reasonable to do so
• Duration: the AGA expires when the immediate assignee itself assigns the lease (or the lease otherwise ends) — the AGA does not survive a further assignment by the assignee
• Insolvency protection: the AGA can oblige the outgoing tenant to take a new lease on the same terms if the assignee's lease is disclaimed by a liquidator or trustee in bankruptcy — protecting the landlord from a gap in liability
• Old law leases: leases granted before 1 January 1996 are governed by privity of contract, not L&T(C)A 1995 — original tenants remain liable for the full term; s.17 notice requirements still apply

When Can a Landlord Require an AGA?

A landlord can only require an AGA as a condition of consenting to assignment where the lease expressly provides for this — either absolutely or subject to conditions. Most commercial leases contain an alienation covenant requiring the landlord's prior written consent to any assignment and expressly permitting the landlord to require an AGA as a condition of that consent. Under s.16(3) L&T(C)A 1995, the requirement for an AGA must be reasonable in all the circumstances. Anti-avoidance (s.16(4)): any agreement requiring the outgoing tenant to guarantee the performance of any person other than the immediate assignee is void — a landlord cannot require the AGA to survive a further assignment or extend to sub-tenants. Whether a landlord can require the outgoing tenant's guarantor to separately guarantee the outgoing tenant's AGA obligations (an 'authorised guarantee agreement of guarantor' or AGAG) is not settled by statute or clear case law — specialist advice is required.

• Lease must permit AGA: the right to demand an AGA must be expressly provided for in the alienation covenant; a bare consent-to-assign provision may not permit this
• Reasonableness: the landlord must be reasonable in requiring the AGA — applying the same standard as for consent to assignment under the Landlord and Tenant Act 1988
• Immediate assignee only: the AGA can only guarantee the immediate assignee's obligations; it cannot guarantee the obligations of any person who later acquires the lease from the assignee
• Anti-avoidance (s.16(4)): any provision requiring the outgoing tenant to guarantee any person other than the immediate assignee is void — this is an absolute statutory rule
• AGAG (guarantor of AGA): whether a landlord can require the outgoing tenant's guarantor to also give an AGA of AGA is legally unsettled; specialist advice essential

Section 17 Notice — Pursuing Former Tenants Under an AGA

Section 17 L&T(C)A 1995 imposes a mandatory notice requirement before a landlord can pursue a former tenant (or their guarantor) under an AGA for a fixed charge. A 'fixed charge' includes rent, service charge, and any other liquidated sum payable under the lease. The landlord must serve a s.17 notice on the former tenant within 6 months of the fixed charge becoming due — in the prescribed form (SI 1995/2964) — identifying the amount and nature of the charge. Failure to serve a valid s.17 notice within 6 months means the right to recover that specific charge from the former tenant is permanently lost. The s.17 notice requirement applies both to new law leases (AGA liability) and to old law leases (privity of contract liability). Many landlords overlook the s.17 requirement when pursuing arrears from the current tenant — by the time they look to the former tenant, the 6-month window may have closed.

• Mandatory notice: the landlord cannot recover a fixed charge (rent, service charge) from a former tenant or AGA provider without a valid s.17 notice served within 6 months of the charge becoming due
• Prescribed form: the s.17 notice must be in the form prescribed by SI 1995/2964; failure to use the correct form will invalidate the notice
• 6-month deadline is absolute: missing the 6-month window permanently bars recovery of that charge from the former tenant — even if the current tenant never pays
• S.19 overriding lease: a former tenant who pays sums demanded under a s.17 notice can require the landlord to grant an overriding lease — a new lease between the landlord's reversion and the current tenancy, enabling the former tenant to forfeit and recover possession from the defaulting current tenant
• Old law leases: s.17 applies equally to pre-1996 original tenants and their guarantors — landlords with pre-1996 leases must maintain the same 6-month notice discipline

Old Law Leases — Privity of Contract

Leases granted before 1 January 1996 (old law leases) are not subject to the release provisions of L&T(C)A 1995. Original tenants in old law leases remain liable throughout the entire lease term under the common law doctrine of privity of contract — even decades after assignment. This means that where a subsequent tenant defaults, the landlord can potentially recover against the original tenant (or any intermediate tenant who covenanted directly with the landlord) subject only to the s.17 notice requirement. There are still many old law leases in existence — particularly long commercial leases granted in the 1980s and 1990s. For commercial landlords, the existence of privity of contract liability in an old law lease is a significant additional credit enhancement. For former tenants, the ongoing privity of contract liability is a potentially material contingent obligation that may need to be disclosed in accounts.

• Privity of contract: original tenants in pre-January 1996 commercial leases remain personally liable for all tenant covenants for the full lease term — even after assignment
• Intermediate tenants: where there has been a chain of assignments, intermediate tenants who entered into direct covenants with the landlord on their assignment may also retain privity of contract liability
• S.17 notice still applies: even in old law leases, the landlord must serve a valid s.17 notice within 6 months of each fixed charge becoming due before pursuing a former tenant
• S.19 overriding lease: available equally for former tenants under old law leases who pay under a s.17 notice
• Due diligence: landlords acquiring a tenanted building with old law leases should identify all former tenants who may have privity of contract liability — this is often a significant additional security not apparent from the current register of title

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