Authorised Guarantee Agreement When You Take Over a Commercial Lease
By Provenance Diligence team · .
This post is for a buyer of a business in England or Wales whose premises are held on a lease, and who has been told that the seller will "give an AGA". It follows the order in which you meet the issues: what the AGA is, how it sits beside the landlord's consent, who else is tied in, what happens on late payment, and which papers answer which question.
Contents
- What an authorised guarantee agreement is, and who it protects
- Can the landlord insist on an AGA?
- How far the AGA reaches: one assignee, one period
- Late payment after you take over: the six-month notice
- Costs and timing of the transfer
- Questions to put to the seller and the landlord
- Sources
1. What an authorised guarantee agreement is, and who it protects
Short answer: An AGA is a guarantee that the outgoing tenant gives the landlord for the person taking over the lease. It protects the landlord, and it does not change what you owe.
A lease is the contract between the landlord and the tenant. The tenant's promises in it, such as paying rent, keeping the premises in repair and using them only for the permitted business, are called tenant covenants. When you buy a business with its lease, the lease is transferred to you. The legal word for that transfer is an assignment. From that day you are the tenant.
The seller is normally freed from those promises at the moment of assignment, if the lease is a "new tenancy" under the 1995 Act: granted on or after 1 January 1996 and not under an agreement or court order made before that date (section 1(1), (3)). On a lawful assignment of the whole premises of such a lease, the outgoing tenant is released from the tenant covenants from the date of assignment, and also loses the benefit of the landlord's covenants (section 5(2) of the Landlord and Tenant (Covenants) Act 1995, called "the 1995 Act" below).
That release is the reason AGAs exist. The 1995 Act allows a tenant who is released, to any extent, from a tenant covenant on an assignment to guarantee the assignee's performance of that covenant (section 16(1)). The assignee is you. The result is a second person the landlord can ask for the rent if you do not pay it.
The three tests
An agreement counts as an AGA only if it passes three tests (section 16(2)).
- The seller guarantees your performance of the relevant covenant.
- It is made in the circumstances set out in section 16(3).
- Its terms conform with section 16(4) and (5).
The circumstances in the second test are specific. The lease must have a covenant against assignment, absolute or qualified, so that the landlord's or another person's consent is needed. The consent must be subject to a lawfully imposed condition that the outgoing tenant gives a guarantee. And the seller must give the guarantee under that condition (section 16(3)).
A guarantee the seller gives for any other reason is an ordinary guarantee, and the AGA rules do not apply to it. For you the point is practical. An AGA belongs to a consent process. If someone says an AGA will be given but no application for consent has gone to the landlord, nothing yet exists that could produce one.
What the AGA is not
It is not a promise by you. You are bound by the lease because you are the tenant, and the AGA adds nothing to your duties.
It does not lower the rent, shorten the term or limit the repairs you take on. It is also not a safety net for you. Its beneficiary is the landlord, who holds a claim against the seller if you default.
Whether the seller can then recover from you is a different matter. That question is answered by the contract between you and the seller for the sale of the business and lease, and by any indemnity (a promise to reimburse) in it. The sale contract is the document to read for it. The 1995 Act does not provide that right on its own terms in the sections covered in this post.
2. Can the landlord insist on an AGA?
Short answer: Yes where the lease allows it and the demand is reasonable. The Court of Appeal said a landlord can require an AGA if it is reasonable to do so. A landlord may also reasonably ask the incoming tenant for a guarantor or a rent deposit.
A landlord asks for an AGA because it loses the seller's liability on assignment. The question for the buyer is whether the demand is lawful, whether it is reasonable, and whether the landlord is asking for too many layers at once.
What the court said about an AGA demand
The court said a landlord "can, if it is reasonable to do so, require the tenant to enter into an AGA" (House of Fraser, para 45).
It did not decide whether section 16(3) of the 1995 Act gives a landlord an absolute right to require an AGA. It said that if it does not, a landlord may still insist on one where consent cannot be unreasonably withheld and requiring one is reasonable (House of Fraser, para 50).
For you this means the answer depends on two documents. The lease says whether it contains a clause that requires or allows an AGA. The facts of the transfer say whether the demand is reasonable. A seller who says "the landlord wants an AGA, there is nothing to discuss" may be right, and the lease clause is how to check.
What the Code says a landlord may ask for
Paragraph 6.2 of the RICS Code says leases should also provide that, if in each case the landlord reasonably requires, three things happen. The assigning tenant is to provide an AGA. Any existing guarantor is to guarantee that the assigning tenant complies with the AGA. And the assignee is to procure a new guarantor, a rent deposit, or both (RICS Code, paragraph 6.2).
Guidance B7 in the same Code adds two points. Landlords commonly require an assigning tenant to guarantee the assignee's performance through an AGA, and the liability lasts until the end of the lease or until the named assignee assigns with any necessary consent (RICS Code, guidance B7).
The second point is a bargaining one. Tenants should try to negotiate a provision under which they need not give an AGA if, for example, the new tenant is financially strong enough, or pays an appropriate rent deposit, or provides a suitable guarantor (RICS Code, guidance B7).
The layers a landlord may stack
| Layer | Who gives it | What it protects | Where it should be written |
|---|---|---|---|
| AGA | The seller | The landlord, against your default | The licence to assign, or a separate deed |
| Guarantee of the AGA | The seller's own guarantor, if there is one | The landlord, against the seller's default on the AGA | The licence to assign |
| New guarantor | A person or company you bring | The landlord, against your default | The licence to assign, or a separate guarantee |
| Rent deposit | You | The landlord, against unpaid rent | A deposit deed |
3. How far the AGA reaches: one assignee, one period
Short answer: An AGA covers one assignee and one period. It ends when that assignee transfers the lease on with consent, and it cannot reach anyone else. If the lease is disclaimed, the AGA may require the seller to take a new tenancy.
Two limits shape what an AGA can do. The statute fixes both, and the AGA form cannot widen them. Knowing them tells you what the seller has taken on and when that ends.
Limit one: the immediate assignee only
An AGA is ineffective to the extent that it makes the outgoing tenant guarantee the covenant for anyone other than the immediate assignee, or imposes any liability for a period after that assignee has been released from the covenant under the Act (1995 Act, section 16(4)).
The "immediate assignee" is the person who takes the lease from the seller. In a sale of a business, that is the buyer or the buyer's chosen company. The AGA does not reach the person who buys from you in turn.
That fact makes the choice of buyer vehicle a landlord question. If you take the lease through a new company, the AGA guarantees that company. If you later move the lease from the company to yourself, or to another company, that is a fresh assignment and needs its own consent.
Limit two: the period
The period runs only until the assignee is released. The Court of Appeal in Tindall Cobham stated the rule as an exception: the only exception to the release under sections 5 and 24(2) is an AGA under section 16, under which the outgoing tenant guarantees the assignee's covenants only until any subsequent assignment of the lease (Tindall Cobham 1 Ltd v Adda Hotels [2014] EWCA Civ 1215, para 16).
The question of how the clause is read came up in EMI Group Ltd v The Prudential Assurance Company Ltd [2020] EWHC 2061 (Ch). The AGA clause used the word "while". The judge held that "while" meant a single period during which the tenant is bound by the covenants (para 50). She held the AGA valid insofar as it complied with the Act, so valid until the assignee's own assignment (para 51).
Read this way, the clock is one period, and it stops when the lease passes to the next tenant with consent. The judge read this clause as not contemplating a later assignment back to the assignee, which she called unlikely (paras 49-50).
What the AGA does not do
It does not follow you to your next lease. It does not make the seller liable for the landlord's own obligations to you. It does not add to what you owe the landlord. And it does not stop the landlord from pursuing you first. The landlord chooses whom to approach, within the terms the form sets, which is why the form must say whether the seller is principal debtor or guarantor (1995 Act, section 16(5)).
4. Late payment after you take over: the six-month notice
Short answer: If you fall behind, the landlord must serve a written notice on the seller within six months of the due date to claim that charge. The notice states the sum and caps it. A seller who pays in full can ask for an overriding lease.
The AGA has a rule that governs how a landlord turns it into a claim. That rule gives the seller some protection, and it also tells you what to expect if you miss a payment.
The notice rule
A former tenant, or a guarantor of a former tenant, who remains bound (including under an AGA) is not liable for a fixed charge unless the landlord serves a notice within six months beginning with the date the charge becomes due. The notice states that the charge is now due, the amount, and any interest claimed (1995 Act, section 17(1)–(3)).
The sum recoverable, excluding interest, is capped at the amount stated in the notice. The exception is where liability is later determined to be greater, the notice warned of that possibility, and the landlord serves a further notice within three months beginning with the date of the determination (section 17(4)).
A "fixed charge" covers rent, service charge under section 18 of the Landlord and Tenant Act 1985, and certain liquidated sums payable for breach of a tenant covenant. The protection therefore does not reach every kind of claim (section 17(6)).
Worked example
Illustrative figures. The shop lease runs on quarter days at £12,000 a quarter. The buyer pays on time until 2028. The quarter due on 24 June 2028 is not paid.
The landlord has six months beginning with 24 June 2028 to serve a notice on the seller, so the last day is 23 December 2028. The notice states £12,000 and any interest claimed. If the quarters due on 29 September 2028 and 25 December 2028 also go unpaid, each quarter has its own six months. Three missed quarters make £36,000 of rent (3 × £12,000).
If a deposit is also held, whether the landlord can take the deposit first or must serve the notice is a matter of the deposit deed, which is why the deposit deed is a document to read.
What the rule means for you
The notice rule protects the seller. It does not change your own liability to the landlord, which comes from the lease. You owe each quarter's rent on its due date whether or not the landlord ever serves a notice on anyone.
What it changes is the timing of a conversation. A late payment you regard as a small delay can start a six-month period in which the landlord decides whether to write to the seller. The seller, who has an interest in the lease running smoothly, may then ask you about it.
If the sale contract contains an indemnity (a promise to reimburse), the seller may also look to you for sums the seller pays under the AGA. Ask a solicitor one question: does the sale contract contain an indemnity in favour of the seller for sums paid under the AGA, and on what terms, including whether it is capped or limited in time?
5. Costs and timing of the transfer
Short answer: The landlord may require a reasonable sum for legal and other expenses, and a licence can cap it. Add the deposit, the stamp duty on any premium and the registration period to the timetable. Fix dates for each step.
An AGA transfer carries costs beyond the price, and each has its own source. This section lists them once, with the rule behind each.
The landlord's costs
Under section 19(1)(a) of the 1927 Act the landlord may require a reasonable sum for legal and other expenses (Landlord and Tenant Act 1927, section 19(1)(a)). The licence is the place where the sum is written.
In Co-operative Group Food Ltd v A & A Shah Properties Ltd [2019] EWHC 941 (Ch), clause 5 of the licence to assign made the tenant pay the landlord's licence costs on completion, capped at £3,250 plus VAT (para 11). That is a sum from one real licence. Another licence may set a different figure or none.
Ask for the cost clause of the draft licence and for the landlord's estimate of the sum, in writing.
The deposit
If the landlord asks for a deposit, the amount, the VAT, the holding period, what it secures and the return with interest are all matters for the deposit deed (RICS Code, paragraph 3.1). The deposit is your money tied up for the period, so put it into your cash plan as a sum that is out of use.
Illustrative figures. Take a deposit of £36,000, the same sum as the three missed quarters in section 4. If the deed holds it for the whole term and returns it at the end, the sum is out of use from 1 March 2027 until the lease ends or you assign.
Stamp duty land tax on a premium
If part of what you pay is a premium for the lease, stamp duty land tax (SDLT) applies. On the GOV.UK non-residential and mixed-use page the rate is zero up to £150,000, 2% on the portion from £150,001 to £250,000 and 5% above £250,000. The page applies these bands to freehold sales and transfers and also uses them for lease premiums (GOV.UK, SDLT non-residential and mixed-use rates).
The page's own example for £275,000 is £0 + £2,000 + £1,250 = £3,250. The net present value of the rent on a new lease is taxed separately at zero to £150,000, 1% from £150,001 to £5,000,000 and 2% above, and the two amounts are added (GOV.UK, same page).
Illustrative figures. If £275,000 of the price were a lease premium, the SDLT on the premium would be £3,250 on the page's bands. The rent element applies to a new lease, and this assignment is not one. How a price for a business splits between the lease, the goodwill and the fittings changes the figure.
Ask a tax adviser one question: how much of the price paid for the business is a premium for the lease, and what SDLT does it attract?
Timing
Put the steps on a calendar in this order.
| Step | Date in the shop example | Source of the timing |
|---|---|---|
| Written application for consent | 11 January 2027 | The statute asks for a reasonable time from this date |
| Landlord's written reply | 8 February 2027 | Day 28 after the application |
| Licence and AGA signed | Before 1 March 2027 | Conditions of the reply |
| Completion and assignment | 1 March 2027 | The date of the deed |
| Registration period, where it applies | Ends 30 April 2027 | Two months beginning with the date of the deed |
Illustrative figures. The dates above are the example's, not a norm. A landlord may take longer or shorter. What matters is that each date is written down.
6. Questions to put to the seller and the landlord
Short answer: Ask the seller for documents, and ask the landlord for conditions in writing. Each question below points to the section that explains why it matters. Work through them in order, and note the date of each answer.
The earlier sections each gave reasons. This one gathers the questions in the order in which a buyer meets them, so you can use it as a working list. The explanation for each sits in the section it links to, and is not repeated here.
Questions to the seller
| # | Ask the seller for | Why, and where it is explained |
|---|---|---|
| 1 | The lease, with every deed that has changed it | What you take on; the assignment clause |
| 2 | The date of the lease | Which consent rules apply |
| 3 | The dated written application for consent | When the landlord's clock started |
| 4 | The landlord's written reply, with its conditions | Whether an AGA, a guarantor or a deposit is required (section 2) |
| 5 | The draft licence to assign, including its schedules | The binding terms of the consent |
| 6 | The form of AGA | The period, the debtor wording, the new-tenancy clause (section 3) |
| 7 | The name of the seller's guarantor, if any, and the guarantee clause | Whether it guarantees the AGA or you directly |
| 8 | Written confirmation from the landlord that nothing is owing | Arrears that stay with the seller |
| 9 | Copies of earlier licences to assign | Whether earlier transfers had consent (section 3) |
| 10 | The sale contract draft, with any indemnity | Who bears the cost if the AGA is called on (section 4) |
Questions to the landlord
These usually go through the seller's solicitor or the landlord's agent. Put them in writing and keep the dated replies.
| # | Ask the landlord | Why, and where it is explained |
|---|---|---|
| 1 | Is consent given, and on what conditions, in writing? | The duty to answer |
| 2 | Which clause of the lease lets you require an AGA? | Whether the demand has a footing (section 2) |
| 3 | Would a deposit or a guarantor replace part of the AGA? | The bargaining point (section 2) |
| 4 | For the deposit: the amount, VAT, holding period, what it secures and the return with interest | The deposit terms |
| 5 | For a guarantor: what the guarantee covers, its cap and when it is released | The guarantee terms |
| 6 | Is the licence cost capped, and at what sum? | The cost clause (section 5) |
Sources
Retrieved on 2026-11-06 unless stated.
- Landlord and Tenant (Covenants) Act 1995, section 5 (release of the outgoing tenant): https://www.legislation.gov.uk/ukpga/1995/30/section/5 (retrieved 2026-11-06)
- Landlord and Tenant (Covenants) Act 1995, section 16 (authorised guarantee agreements): https://www.legislation.gov.uk/ukpga/1995/30/section/16 (retrieved 2026-11-06)
- Landlord and Tenant (Covenants) Act 1995, section 17 (fixed charges): https://www.legislation.gov.uk/ukpga/1995/30/section/17 (retrieved 2026-11-06)
- Landlord and Tenant (Covenants) Act 1995, section 24 (release and guarantors): https://www.legislation.gov.uk/ukpga/1995/30/section/24 (retrieved 2026-11-06)
- Landlord and Tenant Act 1927, section 19 (covenants against assignment): https://www.legislation.gov.uk/ukpga/Geo5/17-18/36/section/19 (retrieved 2026-11-06)
- K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904: https://caselaw.nationalarchives.gov.uk/ewca/civ/2011/904 (retrieved 2026-11-06)
- Tindall Cobham 1 Ltd v Adda Hotels [2014] EWCA Civ 1215: https://caselaw.nationalarchives.gov.uk/ewca/civ/2014/1215 (retrieved 2026-11-06)
- Co-operative Group Food Ltd v A & A Shah Properties Ltd [2019] EWHC 941 (Ch): https://caselaw.nationalarchives.gov.uk/ewhc/ch/2019/941 (retrieved 2026-11-06)
- EMI Group Ltd v The Prudential Assurance Company Ltd [2020] EWHC 2061 (Ch): https://caselaw.nationalarchives.gov.uk/ewhc/ch/2020/2061 (retrieved 2026-11-06)
- RICS, Code for leasing business premises (England and Wales), 1st edition, February 2020: https://www.rics.org/content/dam/ricsglobal/documents/standards/February_2020_Code_For_Leasing_Business_Premises_England_And_Wales_1st_Edition.pdf (retrieved 2026-11-06)
- GOV.UK, Stamp Duty Land Tax: non-residential and mixed-use rates: https://www.gov.uk/stamp-duty-land-tax/nonresidential-and-mixed-rates (retrieved 2026-11-06)