What is an Authorised Guarantee Agreement?
An authorised guarantee agreement is a special form of guarantee that specifically applies to leases granted from 1996 onwards.
They are frequently imposed as a condition of a landlord giving consent to the assignment of a lease. If your business needs to exit it’s current leasehold unit and a new assignee is ready to take your space then you will need to check that your landlord is happy to consent to this change.
However, this does not mean that your liabilities in relation to the lease will come to an end when you assign the lease. Once a lease is assigned and the commercial unit has been exited, you will of course wish to reduce the risk of your former landlord pursuing you in relation to any breaches of the terms of the lease by your successor.
The 1996 rule
Your landlord may be able to pursue you depending on the age of your lease and whether there is an authorised guarantee agreement.
If your lease was granted pre-1996, then landlords can look to former tenants for liability for breach of lease terms by the current tenant. It may be the case that the lease has been assigned on many occasions since you were the tenant however this has no effect in preventing the landlord from pursuing you for breaches from the current tenant.
If your lease was granted post-1996, there are more restrictions as to who the landlord can pursue for breaches of the lease. In most cases, the landlord will require you to provide an authorised guarantee agreement when the lease is assigned and this will be a condition of the assignment, otherwise you will not receive your landlord’s licence to assign. The benefit of the agreement is that the liability to guarantee your successor’s obligations comes to an end once your immediate successor has been assigned the lease. Usually, the landlord’s solicitors will provide a standard form of the agreement to assign the lease. If the assignee does not assign then you will remain liable until the lease expires.
In limited circumstances the authorised guarantee agreement lasts beyond a second assignment – for example if you didn’t obtain the landlord’s consent before assigning the lease. In this situation, your liability under the agreement would last until the next assignment authorised by the landlord. For other limited circumstances, the agreement can be discharged before the usual expiry date, such as if there is a breach by the landlord, such as a material variation of the lease being made without the guarantor being a party to it.
We can help
If you have any questions about authorised guarantee agreements, or would like Ringrose Law to act on your behalf for your Commercial Property transaction, please contact a member of the Commercial Property team at Ringrose Law’s Boston Office on 01205 311511.