The property downturn has seen a renewed focus on the detailed wording of AGAs. For instance, in a recent CA case the terms of the AGA limited the guarantor’s liability to the period during which the assignee was ‘bound by the tenant’s covenants of the lease’. Despite that seemingly unequivocal statement, the guarantor remained liable under the AGA (Dolman [2009], noted in May 2009 issue, p20). The point made there by the CA was that everything depended upon the wording of the AGA – if the parties had wanted AGA liability to end when the lease was disclaimed, then they should have said so.

Given this increased focus on AGAs, it is important to decide what an AGA is intended to achieve:

• automatic condition of assignment? T can legitimately reject a requirement that an AGA must be given on an assignment, irrespective of the circumstances. Also, the Code for Leases 2007 says an AGA should not be a condition of assignment unless the assignee is a weaker covenant or is registered abroad;
• what indemnities? Ensure that the terms of the AGA do not include an indemnity that is broader than that given by T under the lease;
• guarantor to take lease on forfeiture? A distinction can be drawn between disclaimer and forfeiture. If T’s liquidator disclaims then it is perhaps reasonable for L to ask the guarantor to take a new lease on similar terms (since the situation has been created without L’s involvement). But, if L forfeits the lease then it seems unreasonable to require someone else to step in and take a new lease. If L has taken a decision to end the lease then surely he cannot insist on someone else taking a new lease;
• what is the effect of disclaimer? In the light of Dolman [2009]it is essential for T to ensure that there is clear wording to limit the guarantor’s continuing liability if L does not opt to require the assignee to take a new lease following disclaimer.

Do not forget that most of the terms of an AGA are open to negotiation within the parameters set by the 1995 Act (which are extremely broad). This is particularly important in the current economic climate, where strong Ts are in a good position to negotiate terms with Ls. The advice given in the Property Law Journal is that Ts should think long and hard before signing up to so-called ‘standard’ AGA terms as they once did, safe in the knowledge that the risk of an AGA ever being called on was low. The current recession has shown that the risk is not low and that AGA obligations have to be taken very seriously.