What is a Tenant Guarantor?
11th April 2019
One of the most problematic areas of tenancy is that of being a tenant guarantor. And for landlords, dealing with a tenant guarantor is one of the least fun parts of the business.
Being a guarantor
When a landlord takes on a tenant, there may be good reasons that they have doubts about the tenant’s ability to meet their obligations, in which case they can ask the prospective tenant to find a guarantor. But that's not the end of the landlord’s commitment.
Once a tenant finds a guarantor, the landlord still has to assure him or herself that they can take on the tenant’s liabilities if necessary. That means the guarantor needs to be credit checked, and ideally that they should be working and/or have substantial enough assets to fulfil their role.
Then the agreement needs to be recorded legally in a contract, called a Deed of Guarantee. It’s important that the guarantor understands that regardless of the fixed period of any assured shorthold tenancy, they are actually responsible for the financial obligations of the full term of the tenancy, which can be considerably longer than the year that is recorded on that contract. As long as the tenant remains in the property, the guarantor is liable for any debts, including rent owed, restoring damage to a property, and another other costs that arise from the tenants not complying with the tenancy.
Finally, the guarantor needs to understand that they are guaranteeing a tenancy, not an individual. So while they might be happy to support their own child, partner, niece or nephew etc, that isn’t what is happening. They are taking responsibility for everybody who pays rent in that property, not just their own friend or relative. Similarly, where co-tenants each have guarantors, any guarantor may not understand that the first guarantor to sign up can end up being responsible for all the debts of all the tenants - simply because if the other guarantors don’t sign up, they have taken overall responsibility. It is possible to limit a guarantor’s liability, but that needs to be written into the contract and landlords should think carefully about limiting liability for debt if they have doubts about a tenant’s ability to pay and/or reliability.
Working with a guarantor
For landlords, the stress can begin when they have to approach a guarantor to recover costs such as rent arrears. Many guarantors just never actually expect to take financial responsibility and are horrified when the reality hits them. They can become abusive, or argumentative, or fall apart emotionally, and sometimes they try to get out of their responsibility and/or evade it by disappearing.
Landlords do have choices about which guarantors to approach - it isn’t necessarily the case that you want to approach all of them, and often where a tenant defaults as part of a co-tenancy, landlords can find that the guarantor has disappeared too!
While there's no such thing as a guaranteed trouble-free tenancy, landlords should think carefully about:
- why there is a need for guarantors
- the added layer of administration that it builds into your contractual agreements
- the extra burden of time, money and stress that approaching a tenant guarantor can bring, if you have to activate that provision.
For landlords who want to work smart, rather than work hard, DEU Estates offers management that reduces the stress and delivers the profits. Contact us today so we can show you how we make a landlord's life easier!