Kent Solicitors

An assignment of a lease can lead to a long guarantee obligation for the assignor. If a post-1995 Act lease is assigned, the assignor may become a guarantor by virtue of entering into an Authorised Guarantee Agreement (AGA) if required by the lease. Whilst this clearly has implications for the assignor, it is also important to remember that it has consequences for the assignee

Many leases contain clauses providing that the lease may be forfeited by Landlord on the insolvency of any surety of Tenant. This will mean that the lease is liable to forfeiture not simply on the insolvency of a company acting as a guarantor to the assignee, but also on the insolvency of the assignor (since it will be classed as a surety).
If that assignor, being the guarantor under the AGA, is insolvent, then Landlord may be able to require the existing Tenant (the assignee) to provide a replacement surety, depending on the terms of the lease.

It follows that anyone taking an assignment of an existing lease needs to be sure of the financial stability of the assignor. In an extreme situation, the assignor could be a company that becomes insolvent, in which case the assignee may face forfeiture (or have to make an application for relief from forfeiture), and also have to find a replacement surety.

Michael Breeze, Kaslers Solicitors LLP 07 900 195 195 http://www.kentsolicitor.co.uk/

Labels: Assignments lease Guarantee