When a landlord is reviewing a prospective tenant’s suitability for their property they’ll, among other things, consider the tenant’s employment status, income, outgoings, prior tenancy conduct and credit file. If a tenant’s referencing identifies a concern with their suitability, a guarantor can provide the additional security and peace of mind needed by the landlord to move forward.
What Is A Guarantor?
A guarantor is a person or an organization that’s responsible to cover the rent in case the tenant defaults. They effectively join themselves to the agreement in a legal capacity and pledge their financial profile as additional security to the tenant’s financial profile. If the guarantor fails to meet their obligations to cover any shortfall, then a landlord can commence formal recovery proceedings against the guarantor, in addition to the tenant, by way of the county court.
A guarantor could be, but isn’t limited to, a family member, friend, coworker, or even an organization. The standard key eligibility criteria for becoming a guarantor includes the person signing the agreement meeting the minimum legal age, having a stable income thereby demonstrating affordability, and a good credit history.
Guarantors make themselves liable in the event of default. They should therefore be prepared to cover the rent as there is always the possibility that the tenant, for whom they are acting as a guarantor, becomes unable or unwilling to pay the rent themselves.
The nature of their obligation means that they’re placing their own credit file, income or assets as security on the behalf of the tenant.
Term of the Agreement
In some cases, people might happily agree to become a guarantor for their friend or relative. It’s common for landlords to seek wording in a guarantor agreement that extends the guarantor’s obligations beyond the term of the tenancy to the full duration of occupancy. It is therefore very important for the guarantor to understand their role, the possible consequences and the term. After all, it is their willingness to act as guarantor that is encouraging the landlord to offer their property to the prospective tenant because chances are that the landlord wouldn’t allow the tenancy to move forward without the guarantors guarantee. Irrespective of the state of the relationship between the guarantor and tenant at any time during the tenancy, the guarantor will be liable to cover the rent for each period a tenant occupies the property but fails to pay the rent.
Damaged Credit File
The guarantor must recognize that if they fail to fulfil their obligations then the landlord may commence formal recovery proceedings against them and the tenant. This could result in a county court Judgment, which, if not settled within a month of the Judgment being entered, can lead to an impairment of their credit file which could last for up to 6 years. As an example of the impact of an impaired credit file is that the guarantor may struggle to obtain finance themselves and will flag on a credit history search.
How to Approach the Guarantor When a Tenant Fails To Pay the Rent
The guarantor should be notified immediately of any delay or missed payments so they can try and resolve the situation with the tenant directly before fulfilling their obligations to cover the shortfall. A short period of grace should be offered before considering taking any formal action against the guarantor. It’s recommended that you keep the correspondence informal in the first instance and only escalate if they refuse to cooperate.
The Risk to the Landlord of Securing a Guarantor
It’s in our experience that guarantor agreements are very useful. They can offer a way for the parties to move forward with a tenancy. On the flip side, it’s sometimes the case that guarantors never really expected to be called upon. They can become surprised and angry when they are asked to fulfil their obligations. In extreme cases, where a guarantor refuses to cooperate, they will seek to scrutinize the validity of the agreement. In practice, we find that where the fixed term of the agreement has expired and the tenancy is running on a statutory period, a common argument is that they did not believe their obligation extended beyond the fixed term. We therefore recommend that renewal agreements are sourced on expiry of the fixed term and the guarantor re-signed at each and every renewal unless an agreement is reached no longer requiring the security of a guarantor.
To find out more about how guarantors fit into the tenancy arrangement contact Landlord Assist. Our services include, but are not limited to, the serving of notices seeking possession, mediation, tenant eviction UK, enforcement and rent/debt recovery. We can offer valuable guidance and help get the most from your tenancy. Call us for free, practical advice on 01843 223223 or email firstname.lastname@example.org.