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An authorised guarantee agreement is a special form of guarantee that applies to leases granted from 1996 onwards. They were created by statute and are frequently imposed as a condition of a landlord giving consent to the assignment of a lease – i.e. where the original tenant vacates the premises and has another business lined up to take it over.
Under the agreement, your tenant is required to guarantee the performance of the lease obligations by the business which takes over the lease. After assignment, if the assignee breaches a lease covenant, then you are entitled to look to your original tenant to make good that breach.
Most leases today make landlord’s consent to assign the lease conditional upon the tenant providing an authorised guarantee agreement. The agreement will last until the assignee in turn assigns the lease to someone else and if that doesn’t happen the original tenant remains liable until the expiry of the lease.
For example, a lease for 15 years is granted to company A, who assigns to company B after 5 years. At the point of assignment, company A grants an authorised guarantee agreement for company B’s liabilities to the landlord as a condition of obtaining landlord’s consent. Company A’s liability under the agreement is limited to company B’s breaches alone. After 10 years, if company B then assigns to company C (in accordance with the terms of the lease,) then company A’s liability automatically comes to an end.
Due to the long term of an authorised guarantee agreement, landlords may find themselves having to enforce the agreement. This can only be done by serving notice on the assignee under the terms of Section 146 of the Property Act 1925.
A section 146 notice is served when you wish to commence forfeiture proceedings. The notice must:
specify the breach you are complaining of,
If the breach is capable of remedy, stipulate that the assignee must remedy the breach, and
require the assignee to make financial compensation for the breach.
The assignee is given a reasonable time to remedy the breach if it able to be fixed. Court proceedings cannot be commenced unless they either fail to do so or make reasonable financial compensation.
For more information please contact Richard Tomlinson at Lawson-West on 0116 212 1061.