Examination Timing: 00H03M04S
A freeholder granted a 15-year commercial lease of a property in 2012 to a newsagent. The newsagent subsequently assigned the lease to a clothing retailer. The clothing retailer assigned the lease to a chemist. The chemist assigned the lease to a bookstore. All the assignments were made with the landlord’s consent. For the assignment to the clothing retailer, the freeholder required an authorised guarantee agreement from the newsagent. Similarly, the freeholder required an authorised guarantee agreement from the chemist when the lease was assigned to the bookstore. The bookstore has failed to pay the latest quarter’s rent.
Apart from the bookstore, from whom can the freeholder recover the outstanding rent?
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Under an authorised guarantee agreement (AGA), the assignor (in this case, the chemist) guarantees the assignee’s (the bookstore’s) performance of the lease obligations. When the chemist assigned the lease to the bookstore, the chemist provided an AGA, which means the chemist remains liable for the lease obligations, including rent, if the bookstore fails to pay. The previous tenants (the newsagent and the clothing retailer) do not remain liable because they were released from their obligations upon assignment and the required AGAs only involve the most recent assignor.
Key Point: An authorised guarantee agreement ensures that the immediate past tenant (assignor) remains liable for the lease obligations of the current tenant (assignee). This mechanism allows the landlord to recover rent from the assignor if the current tenant defaults.
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