Can you keep your Poker Face when dealing with GAGAs?

Chris Gaunt, senior associate in Rosling King’s Real Estate Group, offers his expert advice in the case of a landlord and tenant lease assignment and the guarantee of assignee where AGAs and GAGAs come into play.

Question:
My tenant has a lease over a property granted after 1 January 1996 and their parent company acts as guarantor. Following a company reorganisation, they want to assign the lease to a company within the same group but need our consent as landlord. Can the current guarantor directly guarantee the proposed assignee?

Answer:
We are seeing an increasing number of companies looking to internally restructure and this often has an impact on how they want to hold their property assets.

If there is not already a clause in the lease permitting intra-group transfers without consent then whilst it may seem like a simple solution to use the same guarantor, with assignments of leases things are, however, a little more complex.

The landlord cannot ask the existing guarantor to directly guarantee the assignee as this would fall foul of the anti-avoidance provisions in the Landlord and Tenant (Covenants) Act 1995 and will be invalid, meaning you risk being left with no guarantor at all.

This issue is a relatively unknown area and there is a trap for the unwary here which often isn’t spotted at the time of the assignment.

So, where does that leave us, as the landlord will want to control the assignment by a tenant of its lease?

One option is for the landlord to seek an Authorised Guarantee Agreement (‘AGA’) from the outgoing tenant and have that AGA guaranteed (a situation known as a GAGA).

What is an AGA/GAGA?
As tenants and their guarantors are automatically released from liability to the landlord when a lease is lawfully assigned to a third party, an AGA is a method of requiring outgoing tenants to guarantee the liabilities of the new tenant under a lease.

However, if the outgoing tenant was not a secure enough covenant and required a guarantee in the first place, it is likely the landlord will not accept this.

That leaves us with either looking for a separate guarantor (which is probably unlikely in this scenario) or else with a GAGA (the guarantee of an authorised guarantee agreement).

Here, if the assignee fails to comply with its lease liabilities, the landlord can call on the outgoing tenant to do so and, if in turn the outgoing tenant is unable to comply, can ultimately require the parent company to comply under the GAGA.

These type of issues are not always spotted at the time of the assignment. If not handled correctly, a landlord may find any attempt to undertake such an assignment will be struck down as void.

Chris Gaunt’s article was published in Property Wire, July 2023. 

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