Authorised guarantee agreement (AGA): what it is and what to include

What an authorised guarantee agreement is

An AGA is a creature of statute. Under the Landlord and Tenant (Covenants) Act 1995 (the “1995 Act”), which applies in England and Wales, a tenant who lawfully assigns the whole of a “new tenancy” is automatically released from the tenant covenants of the lease from the date of the assignment (section 5). A new tenancy is, broadly, one granted on or after 1 January 1996. This was a deliberate reversal of the old “privity of contract” rule, under which an original tenant could remain liable for the rent and covenants for the entire term even decades after selling the lease on.

That automatic release created an obvious concern for landlords: the covenant strength they had underwritten walks out of the door with the assigning tenant. Section 16 of the 1995 Act is the compromise. It allows the landlord, in defined circumstances, to require the outgoing tenant to enter into an authorised guarantee agreement under which the outgoing tenant guarantees the performance of the tenant covenants by the person to whom it has assigned the lease. Crucially, an AGA can only bite in respect of the immediate assignee. As soon as that assignee itself lawfully assigns the lease onward, the original tenant’s AGA liability ends by operation of law, because the assignee is then released under section 5 in the same way its predecessor was.

So an AGA sits in a narrow, well-defined space. It is not a return to perpetual privity, it is a one-step guarantee that follows the chain of assignments a single link at a time.

Key terms and clauses to include

A well drafted AGA is short, but each provision does specific work. The essential building blocks are:

• Parties and recitals. Identify the landlord, the outgoing tenant (as guarantor) and the lease, and recite the proposed assignment and the requirement, whether under the lease or as a condition of consent, that the outgoing tenant enter into the AGA.
• The core guarantee. A covenant by the outgoing tenant that the assignee will pay the rents and observe and perform the tenant covenants, with the outgoing tenant liable if the assignee defaults.
• Principal debtor provision. Wording that the outgoing tenant is liable as principal debtor and not merely as surety, so that variations in the landlord’s dealings with the assignee do not inadvertently discharge the guarantee (subject to the statutory limits discussed below).
• Liability on disclaimer. Section 16(4) permits the AGA to require the former tenant, if the assignee’s lease is disclaimed (typically on the assignee’s insolvency), to take a new lease of the premises for the residue of the term on the same covenants. This is one of the most valuable protections for a landlord and should be expressly drafted.
• Defined duration. State clearly that the guarantee is limited to the period during which the assignee is bound by the tenant covenants, so it self-terminates on the next lawful assignment.
• Ancillary terms. Notices, governing law (England and Wales), and interaction with any rent deposit, third-party guarantee or other security supporting the same lease.

Drafting should avoid over-reaching. Any term that purports to make the outgoing tenant guarantee more than the immediate assignee, or to survive the next assignment, risks being struck down (see the pitfalls below).

When you need one

An AGA is required on the assignment of a new-tenancy commercial lease where the landlord can lawfully insist on it. There are two common routes. First, the lease itself may make the giving of an AGA a pre-agreed condition of any assignment; section 19(1A) of the Landlord and Tenant Act 1927 (inserted by the 1995 Act) allows the parties to a commercial lease to specify in advance the circumstances in which consent may be withheld and the conditions to which it may be subject, and an AGA is a standard example. Second, even without a pre-agreed condition, the landlord may require an AGA as a condition of granting consent to assign where it is reasonable to do so in the circumstances, for instance where the assignee is of weaker covenant strength than the outgoing tenant.

In practice, most modern institutionally drafted commercial leases contain an express AGA condition, so the outgoing tenant knows from the outset that an AGA will be part of the price of assigning. Where the requirement rests on reasonableness rather than an express term, the landlord should be able to justify it, because an unreasonable demand can itself make a refusal or conditional consent unlawful.

Common pitfalls

• Trying to guarantee successive assignees. An AGA that purports to make the outgoing tenant liable beyond the immediate assignee, or to continue after the next assignment, falls foul of the anti-avoidance provision in section 25 of the 1995 Act and is void to that extent.
• The sub-guarantee (or “GAGA”) trap. Case law including Good Harvest Partnership LLP v Centaur Services Ltd and K/S Victoria Street v House of Fraser (Stores Management) Ltd established that a guarantor of the outgoing tenant cannot be required to guarantee the new assignee directly, though it may in some circumstances guarantee the outgoing tenant’s own AGA obligations. This is a technical and much-litigated area and the precise wording matters.
• Applying it to the wrong lease. AGAs are a feature of new tenancies. For “old” leases granted before 1 January 1996, privity of contract may still apply and the original tenant’s liability is governed by different rules, so an AGA is the wrong tool.
• Ignoring the effect of variations. Under section 18 of the 1995 Act, a former tenant is not liable under an AGA for any additional liability arising from a variation of the lease that the landlord had an absolute right to refuse. Landlords who vary a lease with the assignee should not assume the AGA covenant strength is unaffected.
• Forgetting the disclaimer mechanism. Omitting the obligation to take a new lease on disclaimer leaves the landlord exposed precisely when it needs the guarantee most, namely on the assignee’s insolvency.
• Losing track of when liability ends. Because the AGA falls away automatically on the next lawful assignment, both landlord and former tenant need to know when a further assignment has taken place. A former tenant who keeps paying against a liability that has already ended, or a landlord who assumes it still has recourse, is working from a stale picture.

Managing AGAs as part of disciplined contract management

An AGA is easy to sign and easy to forget, which is exactly what makes it risky. The document creates a contingent liability that can sit dormant for years and then crystallise on someone else’s insolvency, and its life is tied to events (onward assignments, lease variations, disclaimers) that happen elsewhere in the property chain. Treating it as a one-off signature rather than a live obligation is how parties end up either paying for liabilities that have lapsed or discovering exposure they had lost sight of.

This is where a contract lifecycle management platform earns its place. Holding the AGA in a central contract repository alongside the lease, the licence to assign and any rent deposit deed keeps the full picture in one place, and an audit trail records who agreed what and when. Renewal and deadline alerts can flag the events that matter, such as a diarised review of whether a further assignment has released the guarantee. PactAI, the AI copilot in Pactolane, can add a further layer: exposure analysis and risk scoring help surface the contingent liability an AGA represents, conflict detection can flag inconsistent terms between the AGA and the underlying lease, and a multilingual executive summary makes the obligation legible to non-lawyers in the business. The platform prepares the analysis; the decision on how to act stays with you and your advisers.

Handled this way, an authorised guarantee agreement stops being a forgotten signature and becomes a tracked, well-understood obligation, which is the whole point of disciplined contract management. No downloadable .docx template is offered here; this page provides general legal information, not legal advice.