The economic landscape in the United Kingdom is shifting on a regular basis.
This means that businesses need more flexibility than ever in their business operations. If you are entering into a new lease for business premises you should consider at the outset what ability you will have to upsize, downsize, or vacate the site altogether.
If you later decide to assign the lease to a third party, this will require the consent of your landlord. One of the conditions to that consent will be that you enter into an Authorised Guarantee Agreement (AGA), the terms of which are agreed when you first enter the lease. This can create a contingent liability for your business.
What is an AGA?
As AGA is a legal agreement under which you, as the outgoing tenant, will guarantee the incoming tenant’s performance of the obligations in the lease. If that tenant was to breach the lease (e.g. it does not pay the rent or it fails to repair the premises), the landlord can recover any losses arising from the breach from you.
How long is an AGA valid for?
An AGA will last for the term of your original lease. However your obligations under that AGA may also fall away in the event that the new tenant lawfully assigns the lease to another business.
Are there any risks?
As stated above, the main risk to your business occurs if the new tenant were to breach the lease. Practical difficulties can arise if you have assigned the lease some years previously but then come under obligation to repair or reinstate the premises. In these scenarios it is highly likely that you will not have the ability to access the premises to remedy the breaches or prevent further breaches from occurring.
If you are entering into negotiations with a prospective landlord it is important to understand the conditions that will apply if you need to make changes further down the line. Addressing this up front will give you greater flexibility in the future and minimise the liabilities you could face.
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