The Assignment of a lease is essentially the selling of a lease to a third party. Commercial leases will often include a provision which allows for the assignment of the lease. This provision much also states that the landlord’s consent is required as if the lease is silent on assignments, the tenant is free to assign without the landlord’s consent
A standard provision will usually allow a tenant to assign the whole of the property to a new tenant provided the consent of the landlord is obtained. This consent cannot be unreasonable without or delayed by the landlord. This is a form of protection provided to the tenant.
Landlords have their own type of protection, theirs in the form of a list of conditions which must be met by the tenant before the landlord is required to give consent to the assignment.
One of the main conditions on this list is the inclusion of an Authorised Guarantee Agreement (AGA). An AGA is a legal document in which the outgoing tenant guarantees the future performance of the new tenant in relation to the covenants from which they are being released. This covers all covenants under the lease such as rent payments and duties to keep the property in good repair. With this agreement the outgoing tenant is agreeing to bear the burden should a breach of any of these covenants occurs.
This Guarantee does come with a risk to the outgoing tenant, and therefore it is important for a tenant to understand exactly what it is they are agreeing to. Although a landlord will want an AGA from the tenant there is a possibility of negotiating out of one depending on the covenant strength of the new tenant. If a new tenant has a greater covenant strength, and by this, we mean a greater ability to comply with and observe the covenants outlined in their lease, there is a higher likelihood of the landlord agreeing to dispose of the requirement for an AGA. Similarly, if the new tenant has agreed to a rent deposit there is also a chance that the landlord will agree to forgo the AGA requirement.
On the other hand, if the new tenant has a weaker covenant strength than the outgoing tenant, the landlord will likely insist on the tenant entering into an AGA. In these cases, there is the risk of the new tenant failing to comply with the convents of the lease. Under the terms of the AGA the landlord will then be able to pursue the outgoing tenant to comply with these covenants instead. This could result in the tenant having to pay for, rent, repairs or any other covenants under the lease.
In the event the lease is disclaimed after the insolvency of the assignee, the landlord can request the tenant to enter into a new lease. This would of course defeat the purpose of the tenant disposing of the lease in the first place.
Lastly, as a result of security of tenure, under the Landlord and Tenant Act 1954, a tenant may be liable for any shortcomings of the new tenant under the AGA beyond the initial contract term. In order to prevent this, it is recommended that the tenant should seek to limit its obligation under the AGA only until the end of the contractual term, and not any “holding over” period
If you require assistance on the drafting of an assignment a lease then call us today, on 0121 268 3208 or send us an email at email@example.com with your query and we will get back to you.