An authorized guarantee contract (also called AGM) is a document that a landlord can ask the existing tenant (the agent) to sign during a tenancy to ensure the landlord`s position if the incoming tenant (the agent) does not comply with the terms of the tenancy agreement. The agent signs with the lessor an authorized guarantee contract to ensure the execution of the rental obligations by the agent. As part of an authorized guarantee, the outgoing tenant guarantees that the incoming tenant (the agent) fulfills all obligations arising from the tenancy agreement. If the tenant were to give in, the tenant would be liable for the breach of the agent`s lease. There are provisions for the tenant to pay rent and fulfill the tenancy obligations, i.e. repairs if the assignee does not do so. In addition, there may be provisions requiring the tenant to take over a new tenancy agreement for the remainder of the term, when the assignee is bankrupted and the lease is no longer claimed by his agent. In other words, the outgoing tenant may be obliged to enter into an AGM in order to ensure the execution of tenant alliances in the tenancy agreement by the assignee. According to the Court`s case law, it is established that the guarantor of an outgoing tenant can guarantee the performance of his obligations under the AGM as a sub-guarantee. The law did not change the subletting rules, but it did mean that the parties could enter into an agreement with any commercial lease agreement, usually expressly in the lease agreement, indicating the circumstances under which consent to the assignment may be refused or under conditions under which consent may be given. The limits of characteristics that an AGM can and cannot have are set by the Landlords and Tenants Act 1995. An AGM may ask the outgoing tenant to take over the lease or to resume a new lease for the remainder of the lease if the assignee goes bankrupt or goes into liquidation.
However, an AGM must not include an obligation for the outgoing tenant to carry out an obligation of a person other than the assignee. AGAs are common for commercial real estate rentals, but it is important that tenants understand the effects of them when the lease is originally granted and on any subsequent transfers. A recent High Court decision in the Co-Operative Group Food Ltd/. A-A Shah Properties Ltd (2019) refers to a dispute in the approved guarantee agreement (AGM), in this case an agreement involving a guarantor of the outgoing tenant. The Landlords and Tenants Act came into force on January 1, 1996. The law abolished the „no contract“ – the relationship between the parties in a contract that allows them to sue each other, but prevents a third party from doing so – for all new commercial leases, whereas, in certain circumstances, an outgoing tenant may be obliged to guarantee his immediate assignee. If this were not the case, a condition would have imposed obligations on the tenant`s deposit equivalent to those which Section 24 LTCA wished to release in 1995, the order of the legislation. Good Harvest has resulted in any direct guarantee of an incoming tenant`s deposit not applicable to an incoming assignee.