While it may not yet be common practice, the requirement in the private rental sector for a guarantor to stand behind a tenancy is becoming more familiar.
Landlords who are nervous about the protection of their income and property, particularly with the current legislative limits on the level of security deposits, are turning to this long-established method of minimising their exposure to risk.
Rental market experts, Goodlord, analysed a sample size of 730,000 tenants who took on a rental property between January 2018 and December 2021. It revealed that requests for guarantors for non-student tenants jumped by a third during that time. This represents a 36% rise over the last four years (source: Property Reporter – Feb 2022)
Let’s look at how the system works and then consider some of its inherent problems.
What is a guarantor?
A guarantor is an individual, or in rare circumstances a company or other body, who makes a binding promise to pay the rent on behalf of a tenant who is unable to do so. The status of a guarantor is recognised in law, and an individual who does not honour their commitment when asked can be sued for the debt.
Why would a landlord insist on a guarantor?
There are many reasons a guarantor is needed, but they all come down to a landlord’s fear of not getting paid. So for example, guarantors might be required for
- a student
- a first-time renter
- someone unemployed or on low income
- a tenant with a poor credit rating or even no history
- someone who is newly arrived in the country
- someone who has just started a new job.
It’s a mistake to think that a guarantor will only be liable for unpaid rent. This is the usual position, however it’s not uncommon for guarantors to be asked to make guarantees relating to loss or damage, and this can cover items and appliances as well as decorative and structural harm.
Everyone who agrees to stand as guarantor should make themselves fully aware of the extent of their responsibilities and the limits of their rights before they sign what is a legally binding document.
What to consider if you agree to be a guarantor
It is important to remember that being a guarantor is a much more serious commitment than simply doing favour for a relative or friend. You may trust the individual unquestioningly and have no reason to expect any negative outcomes.
However as this is a legal relationship, regardless of how close you are to the tenant, you should seek legal advice.
At Inventory Base our experience of operating in this sector tells us that the most obvious and comprehensive source of assistance is a solicitor, but this is also the most expensive option.
There may be some protection built into any fee you pay in the event that the advice you receive proves unreliable, but the cost can be prohibitive.
The Citizens Advice Bureau is always a good place to turn, and most local councils will provide some help, as will tenant groups and associations.
Shelter, the housing charity, offers various helplines, and a quick search will reveal other websites offering free tips.
The most important thing is to understand everything to which you are agreeing.
What questions should a guarantor ask?
Some of the most significant questions you should clarify include the precise nature and extent of your liability. For example, is it just for rent or for physical property, and in the case of shared accommodation, does it cover other tenants?
You should also be sure when the liability ends, whether the agreement automatically sanctions rent increases, how joint tenancies could affect your position and thoroughly explore all the terms and conditions.
You should also bear in mind that once you are under a legal obligation, you cannot consider yourself to be at arm’s length. It is standard practice for the guarantor to counter-sign the tenancy agreement, which essentially makes you a party to it. That means you have a right to see and receive copies of all relevant documentation.
What do inventories have to do with being a guarantor?
If you are unfamiliar with the private rental sector then you may not appreciate the significance of property inspection reports or inventories. These are carried out at the start and end of the tenancy (check-ins and check-outs), and usually at half-yearly or annual intervals during the tenancy.
They play a vital role in determining liability for loss and damage, and are almost as important as the tenancy agreement itself. Any discrepancy between the check-in and any subsequent reports will have to be accounted for by one of the parties, and a remedy or restitution agreed upon.
If you are liable only for rent this may not directly affect you financially, however you should nevertheless remain fully informed of everything that relates to the property during the term of the tenancy.
Of course, if you are also liable for the condition of the property it is imperative that you keep up to date with the inspection reports.
Each time a report is prepared all parties to the tenancy agreement must sign to indicate their acceptance of its findings, and once you have done this you are bound by it.
Although unusual for guarantors to commission their own reports, you would be within your rights to do so but at the very least you should insist that you are provided with a copy and take the time to scrutinise the information and ask for clarification weather than accepting the information at face value.
How do you find a professional inventory provider?
To commission an independent provider you can access qualified and professional clerks via Inventory Base Workstreams.
Inventory Base specialises in developing inventory property management software aimed at professional inventory clerks. However our solutions are available to landlords, letting agents and even guarantors should they wish to make use of them.
If you are considering acting as a guarantor you need to take the commitment as seriously as if you were assuming the tenancy yourself. Simply put, if things go wrong between the tenant and landlord that could be exactly the position in which you find yourself.