Authorised guarantee agreements (AGAs)
Leases granted on or after 1st January 1996 (“new leases”)
Leases granted before 1st January 1996 (“old leases”)
AGA = agreement between L and assigning T under which assigning T guarantees that the assignee will perform the lease covenants
If assignee does not perform lease covenants then L can take action against assigning T
If assignee does not perform lease covenants then L cannot take action against assigning T
AGA = agreement between L and assigning T under which assigning T guarantees that the assignee will not perform the lease covenants
If AGA entered into by assigning tenant
When T1 assigns to T2 the lease covenants pass to T2 (section 3) and T1 is automatically released from any liability under the lease (section 5)
If T2 then defaults, L1 can bring an action against T2 due to section 3 or against T1 due to AGA
If T2 assigns to T3 the lease covenants pass to T3 (section 3) and T2 is automatically released from any liability under the lease (section 5)
T1’s AGA will no longer be enforceable
L might request AGA from T2 instead to guarantee T3’s performance
T1’s AGA will still be enforceable
enables L to require assigning T to enter AGA only in certain circumstances
Section 16 LT(C)A 1995
Section 15 LT(C)A 1995
Section 17 LT(C)A 1995
Section 18 LT(C)A 1995
Section 16 enables L to require assigning T to enter AGA only in certain circumstances:
Lease must contain covenant against assignment without consent of L
Must be reasonable to require assigning T to enter AGA
L and T can agree that L may grant consent to assignment subject to condition that assignor enters into an AGA on assignment
Note the effect of LTA 1927 section 19(1A)
Note the effect of LT(C)A 1995 section 19(1A)
LTA 1927 section 19(1A)
Will then be automatically reasonable for L to impose condition that assignor enters into an AGA on assignment
Remember that section 19(1A) only applies to leases of commercial premises granted on or after 1st January 1996 and it affects only assignments (not sublettings)
Remember that section 19(1A) does not apply to leases of commercial premises granted on or after 1st January 1996 and it affects only assignments (not sublettings)
Terms of the AGA
Can only require assignor to guarantee performance of the lease covenants by immediate assignee
Can make assignor liable as principal debtor
Cannot make assignor liable as principal debtor
Cannot require assignor to guarantee performance of the lease covenants by immediate assignee
Can require assignor to enter new lease if assignee is declared bankrupt and lease is disclaimed by trustee in bankruptcy
New lease will be for remainder of term of disclaimed lease and covenants must be no more onerous than in disclaimed lease
Can't require assignor to enter new lease if assignee is declared bankrupt and lease is disclaimed by trustee in bankruptcy
The position of the landlord
When L assigns reversion there is no automatic release from liability under lease
When L assigns reversion there is automatic release from liability under lease
The position of the landlord steps
1) L may apply to be released
2) Must serve written notice on current T requesting release
3) Must do so before or within 4 weeks after assignment
2) Must do so before or within 4 weeks after assignment
1) Must serve written notice on current T requesting release
3) L may apply to be released
T can serve written notice of refusal on L within further 4 weeks
If T does not then L automatically released
If T does not then L is not automatically released
If T does so then L must apply to court
Former T who suffers loss due to liability under AGA for default of assignee may:
Bring action against defaulting assignee under general law of guarantees
Take action against his assignee on indemnity covenant (note that indemnity covenant will not be implied into a new lease)
Take no action against his assignee on indemnity covenant (note that indemnity covenant will not be implied into a new lease)
Sections 17, 18 and 19 Landlord and Tenant (Covenants) Act 1995
Apply to both old and new leases – retrospective
Improve position of former T who remains liable either due to privity of contract (if old lease) or due to having entered AGA (if new lease)
Do not improve position of former T who remains liable either due to privity of contract (if old lease) or due to having entered AGA (if new lease)
Only applies if original lease does not provide for variation which has taken place
Section 18
Section 17
Section 19
This section applies when a Landlord wishes to recover a fixed charge from a former tenant?
To recover fixed charge from former T, L must serve default notice on former T within 6 months of charge becoming due
To recover fixed charge from T, L must serve default notice on T within 4 months of charge becoming due
Fixed charges are sums capable of definition or ascertainment in the lease for example:
annual rent
service charge
damages for the tenant’s failure to keep the property in repair
Default notice must state that the sum is due and that L intends to proceed against former T to recover it
If L fails to serve default notice then cannot recover fixed charge from former T
Former T will not be liable to extent that covenants have been made more onerous by variation
Overriding lease = lease which slots in above lease to defaulting assignee
Section 19 results in two leases
Overriding lease between L and former T (T1)
Original lease between former T (T1) and defaulting assignee (T2)
Duration of overriding lease = 3 days longer than term of lease being overridden
Duration of overriding lease = 4 days longer than term of lease being overridden
Other terms = different terms to lease being overridden
Other terms = same as terms of lease being overridden
Former T becomes immediate landlord of defaulting assignee which gives former T more control over defaulting assignee
Subleases
Privity of contract between L1 and T1 and between T1 and S1
Privity of estate between L1 and T1 and between T1 and S1
No privity of contract or privity of estate between L1 and S1 (no contract and no direct landlord and tenant relationship)
L1 cannot therefore enforce covenants in headlease or in sublease against S1
L1 therefore can enforce covenants in headlease or in sublease against S1
Likely that headlease and sublease will be on same terms so if S1 is in breach of sublease then T1 will also be in breach of headlease
L1 then has right of action against T1 (headlease)
L1 then has right of action against S1 (headlease)
T1 has a right of action against S1 (sublease)
Still no privity of contract or privity of estate between L1 and S1 (no contract not in direct landlord and tenant relationship)
Privity of contract or privity of estate between L1 and S1
The restrictive covenant exception
Restrictive covenant = covenant which is negative in substance and which prevents occupier from doing something on land
Restrictive covenant = covenant which is negative in substance and which does not prevent occupier from doing something on land
If dealing with unregistered title:
Restrictive covenant directly enforceable against subtenant if he has notice of it
Restrictive covenant automatically directly enforceable against subtenant
If dealing with registered title