It is important to be aware that if you have a lease of commercial property and wish to assign it to a new tenant, there is a common misconception that you will be relieved of all liability under the lease once you have assigned the lease. It is common practice for commercial leases to include provision for the outgoing tenant to enter into an Authorised Guarantee Agreement (otherwise known as an “AGA”).
An AGA is a guarantee given by the outgoing tenant that the new tenant will perform the tenant covenants that the outgoing tenant has been released from. If the new tenant fails to perform the tenant covenants then the landlord can pursue the outgoing tenant under the AGA:
- to enforce the tenant covenants (for example by way of payment of rent or to comply with the repair obligations in the lease)
- to enter into a new lease (on the same terms as the existing lease) if the new tenant defaults and the existing lease is disclaimed.
It is also important for the outgoing tenant to be aware that if the Lease has security of tenure under the Landlord and Tenant Act 1954, then the lease may not end at the end of the contractual term if the new tenant holds over, this means that the outgoing tenant may be bound by the AGA for longer than they anticipated. This is a point for commercial negotiation as to whether it can be specified that the AGA will not include any period of holding over.
If you require any advice as to your commercial property, please get in touch and we would be happy to advise you, please contact bromleys@bromleys.co.uk or call 0161 330 6821.