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Drafting, negotiating and completing a licence to assign

Negotiation and Completion of a Licence to Assign

Heads of terms for a licence to assign 

Once a tenant has obtained the landlord’s consent in principle to a proposed assignment of the lease, the next stage is to negotiate and complete a formal licence to assign to document the landlord’s consent.

It can be helpful to draw up heads of terms so that the landlord, tenant and assignee (and their legal advisers, if any) have the information they need to enable the licence to be drafted. This will include the parties’ full names, addresses and company numbers (if applicable); details of the lease; timescale; costs; and any special terms agreed in relation to the assignment, including whether the tenant is to enter into an authorised guarantee agreement.

Authorised guarantee agreements (AGAs)

A landlord will often ask the outgoing tenant to guarantee the assignee’s covenants to pay rent and comply with the terms of the lease. This is known as an authorised guarantee agreement (AGA) and it was introduced by the Landlord and Tenant (Covenants) Act 1995. The tenant’s guarantee will last until the end of the term of the lease or, if sooner, until the assignee assigns the lease to a new tenant.

If the assignee is of very strong covenant strength the landlord may decide not to require an AGA from the outgoing tenant.

Drafting, negotiating and completing the licence 

The landlord, or its solicitors, will prepare the first draft of the licence to assign. This will be circulated to the tenant and assignee, or their respective solicitors. The tenant and assignee may ask for amendments to be made to the licence. These will be discussed and then a final agreed version of the licence will be produced for execution as a deed by all parties.

Best practice is for all three parties to execute three copies of the licence. This means that after completion of the licence each party can retain an original licence document executed by all three parties. However, if timescale or logistics make this approach difficult, the licence can be executed in separate parts by the landlord, tenant and assignee.

When the licence has been executed by all three parties, they need to agree to complete it by entering the date in the gap at the top of the licence. (The date should be left blank until this point.) Once the licence has been completed, the tenant and assignee may proceed with the actual assignment of the lease.

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