Authorized guarantee agreement

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An agreement made between a tenant who wishes to assign his lease, and his landlord, to the effect that the tenant will accept liability for any breach of covenant of his assignee (see leasehold covenant).

AGAs are a creation of the landlord and tenant covenants act (1995), and seek to strike a balance between the protection of the tenant who assigns his lease to a rogue (or to a person who subsequently assigns to a rogue, and so on), and the right of the landlord not to be burdened with the tenant's poor choice of assignee.

The right of a tenant to assign always creates a difficulty for the landlord, particularly if the landlord has no say in the matter. The tenant will wish to assign to the person who pays the most, regardless of his good character, and this is not in the best interest of the landlord. Even where the landlord does have a say in the matter, the courts have sought to limit the landlords power to choose the tenant's assignee. Before 1995, the onus was on the tenant to choose his assignee very carefully, because he, the tenant, would be responsible for breaches of covenant until the lease expired, even long after moving out.

Since 1995, the tenant's obligations in respect of covenants come to an end when he assigns his tenancy. Consequently, in leases where the landlord has the power to refuse consent to an assignment, he also has the power to require the tenant to enter into an AGA. The AGA gives the landlord the right to recover from his former tenant if the subsequent tenant is in breach of covenant.

At first sight it appears that the tenant's position is not much improved. Pre-1995 he would be liable to the landlord for the default of his assignees; post-1995 he is not liable, but he can be required to enter into an agreement that makes him liable! However, there are two major improvements in the tenants position. First, if the lease does not give the landlord the right to object to the tenant's assignment, then the landlord does not have the right to insist on an AGA. The tenant's release from his obligations is automatic. Second, the AGA only extends until the assignee himself assigns his tenancy. At that point, the landlord has to seek a new AGA from the new tenant; the original tenants obligations automatically come to an end.



UK LAW
Land and Property Law