Q&A - What is meant by an AGA in respect of transferring a business lease?

27/10/2014

Q.  I am retiring and am selling my tyre sales business. I trade out of rented premises and I want to pass the lease onto the buyer. The Landlord says I must provide him with an AGA. What does he mean?

A.  AGA is trade shorthand for an Authorised Guarantee Agreement. That is an agreement usually contained in the licence which permits an existing tenant to assign or transfer their lease. It is an “authorised” guarantee agreement because back in 1996   the Landlord and Tenant (Covenants) Act varied the common law position that a tenant remained liable to pay the rent for the whole of the term of the lease, even though they had assigned their lease. Landlords were, and are, restricted so that they can only require guarantees which were authorised by the 1996 Act. An AGA is a guarantee that if the tenant you assign to doesn’t pay the rent you will do so.

Leases can be drafted differently. Most leases include provision for an AGA but sometimes the landlord can only ask for an AGA if it reasonable. For example if there is no provision in the lease and you are selling out to a national chain it would not be reasonable to ask for an AGA. If you sold out to an individual who then couldn’t pay, the landlord could claim against you under the AGA but he must serve notice on you that the tenant has not paid and that a claim will be made against you. You would remain “on the hook” until the new tenant transfers the lease again with the landlord’s approval or the lease expires.

There may be other ways of dealing with the lease issue which could reduce your risk so it would be advisable to seek advice from a good commercial lawyer.

Iain Hall

Iain Hall

Senior Solicitor

Part of our Property team in Wrexham

Hannah Fynn

Hannah Fynn

Solicitor

Part of our Commercial and Residential Property team in Oswestry