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An AGA? - it's enough to drive a landlord GAGA!
An AGA? - it's enough to drive a landlord GAGA!

1. What is an AGA ?

It is the acronym for an Authorised Guarantee Agreement.

2. What is an Authorised Guarantee Agreement?

Most commercial leases allow a tenant to assign its lease but subject to certain conditions being fulfilled.

Invariably one of those conditions is that the outgoing tenant (the Assignor) guarantees that the incoming tenant (the Assignee) will comply with the terms of the lease whilst the Assignee remains as tenant of the lease. In particular it is a guarantee to the landlord that the Assignee will pay the rent so that if the Assignee fails to do so the Landlord can claim the arrears from the Assignor.

3. What if when the Lease was granted in addition to the Assignor the Landlord also had a guarantee from another party? (e.g. if the Assignor was a company the landlord may have obtained a guarantee from a director personally or a parent company (The Assignor’s Guarantor)).

In those circumstances the landlord cannot require the Assignor’s Guarantor to enter into and be a party to the AGA.

In addition the Landlord cannot require the Assignor’s Guarantor to enter into a direct guarantee that the Assignee will comply with the tenant’s covenants contained in the lease.

4. What is a GAGA?

A GAGA is a guarantee by the Assignor’s Guarantor of the obligations of the Assignee under the AGA

5. How and when can a GAGA be enforced?

Although the Landlord cannot require the Assignor’s Guarantor to enter into a direct guarantee of the obligations in the lease by the Assignee the landlord can require the Assignor’s Guarantor to guarantee that the Assignee will abide by the terms of the AGA. This is subject to the lease containing provisions allowing the landlord to impose this obligation.

In consequence if the Assignee fails to pay the rent and the landlord having tried to enforce the AGA against the Assignor cannot obtain the money from the Assignor the Landlord can then require the Assignor’s Guarantor to remedy the breach of the AGA by the Assignee.

This is a very brief synopsis of what is a tricky area of law. For a more detailed explanation of the law regarding AGAs and GAGAs please contact Steven Porter on telephone number 020 7644 6091 or email sporter@jpclaw.co.uk or contact him on LinkedIn.

 

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