Commercial property leases
Commercial property leases are often for long periods of time, the average now being 8 years, but for some it can be as lengthy as 25 years. With this being the case it is not uncommon for a single lease to be re-assigned from the original tenant to a new tenant.
What is an authorised guarantee?
An authorised guarantee is a lease clause that enables a commercial landlord to make a claim for unpaid rent from a previous tenant, should the lease have been assigned to a new tenant.
A previous tenant may be liable to make a payment on behalf of a defaulting tenant, this should include all money due including interest and other charges specified in the lease when an “Authorised Guarantee Agreement” is in place.
An “Authorised Guarantee Agreement” guarantees the tenant who has taken over from the original tenants’ rental payments, but not any subsequent assignees payment, should there be further assignment of the lease down the line.
It is worth noting that this will only be the case if there is a legally binding authorised guarantee agreement in place that complies fully with the existing legislation (Landlord and Tenant (Covenant) Act 1995).
Is there a time limit for a claim?
The claim for unpaid rent by tenant in situ must be brought to the attention of the former tenant within 6 months of the issue where such a clause exists, this will be by way of default notice given to the former tenant.
How long is the Authorised guarantee agreement valid?
The authorised guarantee is valid until the end of the contract, or when the lease is assigned on to another party, unless this is an excluded assignment.
When a tenant wishes to assign his lease to another party, consent from the landlord may be required.
It is also important to remember that any change in assignment of a lease must be registered at the Land Registry. If these two are not fully complied with such as in this case then the landlord can claim against the previous tenant.
David is an authorised High Court Enforcement Officer and our Director of Corporate Governance