Authorised guarantee agreements: when a landlord can require one, what it covers, and when it ends

What is an authorised guarantee agreement?

An authorised guarantee agreement (AGA) is an agreement under which a tenant who assigns a lease guarantees the performance of the tenant covenants by the assignee. It is defined in section 16(2) of the Landlord and Tenant (Covenants) Act 1995, and it must be entered into in the circumstances in section 16(3).

Those circumstances are that a covenant against assignment means the assignment cannot be made without the landlord’s consent, and that consent is given subject to a condition that the tenant enter into the guarantee (section 16(3)).

Section 16(1) also confirms that the Act does not stop a tenant released by the Act from entering into an AGA (section 16(1)).

When can a landlord require one?

A landlord can require an AGA as a condition of consent to an assignment, where the lease has a covenant against assignment and the condition is lawfully imposed (section 16(3)). Section 16 requires only that the condition be “lawfully imposed”; it does not itself say when a landlord may impose one (section 16(3)(b)). For a qualifying lease, the parties can agree the condition in advance under section 19(1A) of the 1927 Act.

For a new tenancy, the Landlord and Tenant Act 1927 also allows the landlord and tenant to agree in advance the circumstances in which the landlord may withhold consent, and the conditions on which consent may be given. If they do, a refusal or condition in those circumstances is not treated as unreasonable (Landlord and Tenant Act 1927, section 19(1A)). That agreement applies to a “qualifying lease”, which is a new tenancy under section 1 of the 1995 Act, excluding residential leases (section 19(1E)(a)).

What does an AGA cover, and what are its limits?

An AGA can make the outgoing tenant liable as sole or principal debtor for the assignee’s obligations under the covenant, or as guarantor of the assignee’s performance. A guarantor’s liability must be no more onerous than the liability of a principal debtor (section 16(5)(a) and (b)).

An AGA cannot make the outgoing tenant guarantee anyone other than the immediate assignee (section 16(4)(a)). If the assignee’s lease is disclaimed, it can require the tenant to take a new lease (section 16(5)(c)).

The main limit is time. An AGA may not impose any liability, restriction or other requirement in relation to a time after the assignee is released from the covenant (section 16(4)(b)).

Section 25 of the 1995 Act makes void any agreement relating to a tenancy to the extent that it would exclude, modify or otherwise frustrate the Act. Section 25(3) provides that this does not catch an AGA to the extent that it is one, but an agreement is void to the extent it falls within section 16(4)(a) or (b) (section 25).

Excluded assignments are those made in breach of a tenant covenant or by operation of law. They do not release the tenant: the release takes effect on the next assignment that is not an excluded one (section 11).

When does a guarantor of the tenant get released?

Where a tenant is released from a tenant covenant by the Act, a person who guaranteed or is bound by a covenant imposing liability for failure to comply with that covenant is released to the same extent (section 24(2)). On an assignment of the whole premises, the assigning tenant is released from the tenant covenants of the tenancy under section 5(2)(a).

The release does not affect liability for a breach that occurred before the release (section 24(1)). So a guarantor of the outgoing tenant keeps liability for earlier breaches, even if the tenant is released.

The release under section 5 applies only to new tenancies (section 1(1)), so a guarantor of a tenant under a pre-1996 lease is not released by these provisions.

What about leases granted before 1 January 1996?

The Landlord and Tenant (Covenants) Act 1995 came into force on 1 January 1996 (section 31, editorial note: SI 1995/2963). Sections 3 to 16 and 21 apply only to new tenancies, which are tenancies granted on or after that date, other than a tenancy granted under an agreement made, or a court order made, before that date (section 1(1) and (3)). A tenancy granted after that date under an option granted before it is also treated as granted under an earlier agreement (section 1(6)).

For a lease granted before that date, the release on assignment in section 5 and the AGA rules in section 16 do not apply. The position depends on the terms of the lease and the older law, which this page does not cover. Check the lease, and take advice on the date it was granted, before assuming that an AGA can be required.

What should a landlord or tenant check?

Before agreeing to give or accept an AGA, check the following:

• The date the lease was granted, since the AGA rules apply only to new tenancies.
• Whether the landlord’s consent to the assignment is conditional on an AGA, under section 16(3).
• Whether the AGA stops at the assignee’s release, under section 16(4)(b), and whether any guarantor of the outgoing tenant is released under section 24.