Do you need a guarantor?
Do you rent to students? Perhaps your rentals aren’t standard. If so, you might need a guarantor. We outline some tops tips to consider when signing up a guarantor.
Guarantors are a secure way of improving the likelihood that rent will be paid for those who do not meet the normal requirements of a tenancy agreement. Guarantors must be:
- a homeowner or have assets
- receive an income that meets the affordability criteria
- a relative or family friend of the tenant
● Ensure your prospective tenant is aware before the tenancy begins that you may share details of rent arrears and other breaches of the tenancy agreement with the guarantor, and that this is reflected in the landlord’s Fair Processing Notice.
● Send a Fair Processing Notice to comply with GDPR regulations May 2018 to the prospective guarantor.
● Reference check your guarantor and send them a draft copy of the tenancy agreement before the tenant has signed it.
● Send the guarantor a ‘letter of guarantee’ for signing with a covering letter.
Conduct a full affordability check on the guarantor as well. If you have purchased a rent-guarantee product like NLA Rent Protect, this is usually a requirement. The guarantor letter should include some vital points, such as the names of the landlord and tenant, plus the address of the rental property. It should be signed and dated by the guarantor as well as a witness, as this is legally considered a deed.
The letter should also contain an explanation of what the guarantor is liable for, such as rent arrears and damage. It should also include a description of the guarantor’s liability, as in the case of a jointly and severally liable tenant this could extend beyond the individual’s rental liability.
In England and Wales only, if the initial tenancy is a fixed-term tenancy, advise that if the tenancy becomes periodic at the end of the fixed term, the guarantor agreement continues. Include a covering letter where you can explain that the guarantor may need to seek legal advice. Urge them to read and understand the terms of the tenancy agreement and highlight any key documents that are enclosed with the letter.
It's not advisable for landlords to include the guarantor’s details on the tenancy agreement. This could cause mistakes and confusion – the guarantor is not a party to the tenancy. The following sequencing is best:
1. Reference prospective tenant
2. Reference prospective guarantor
3. Guarantor agreement signed by guarantor (guarantor must have sight of the tenancy before it is signed by the tenant).
4. Tenancy agreement signed by landlord and tenant
If there is a guarantor for one individual in a joint tenancy, then that guarantor is also liable for the other tenants in the property because legally this is a jointly and severally liable tenancy. In the event of a money claim in England and Wales where there are five or more tenants and all tenants and the guarantor are jointly and severally liable, a judge may only hold the first four tenants liable. It is therefore important to consider the order in which the tenants are listed on the tenancy agreement, ensuring that those with guarantors are among the first four.
Landlords should go for no limitations on guarantees. But if a guarantor requests to limit their liability, landlords should consider their options. It is not unusual for a guarantor to request their liability be limited. If the landlord and guarantor agree, it could be a percentage of the final debt owed, or a debt specifically related to a named tenant.
If there is more than one tenant on different tenancy agreements, we would suggest individual guarantors for each tenant. Most people would not want to guarantee people they are not related to.
Can guarantors give notice?
The guarantor cannot give notice within the fixed term. But, should the tenancy turn periodic, then the guarantor may give one month’s notice. However, this does not impact the tenant’s rights to remain in the property. This is subject to there being no material changes to the tenancy agreement.
Breaches of contract
If the tenant is in arrears, the landlord should send a rent demand letter to the guarantor. Send copies of all correspondence relating to rent arrears or other breaches of the tenancy to the guarantor. The guarantor could become liable for the payment if the tenant does not pay the rent and absconds.
Need advice? The NLA’s Telephone Advice Line is staffed by our team of experienced landlords who have a wealth of knowledge. The advice line (020 7840 8939) is free for members - see options for joining here.
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