It’s tricky getting the balance right as a landlord. Budgets are being squeezed tighter and tighter, and every penny counts towards profit. So, if a tenant finds themselves in trouble with the rent, it can be comforting to have a fall-back plan, someone waiting in the wings who has not only got your tenant’s back, but yours as well. Guarantors are a great safety net, and provide many landlords (and tenants) with a feeling of security. However, taking on the task of being a guarantor is a serious legal responsibility, and it’s important to understand exactly what’s being asked:
What exactly is the role of a guarantor?
A guarantor is almost like a form of insurance for landlords, providing a safety net should your tenant be unable to pay some of all of their rent, causes damage to the property that are not covered by the deposit, or otherwise causes you an expense or loss through not carrying out the obligations that they agreed to within their tenancy agreement. A guarantor can be held responsible for these issues in a number of instances, including if the tenant stops paying the rent, is unable or unwilling to afford to meet their financial obligations, or even if they pass away.
Can anybody be a guarantor?
There are certain requirements that a guarantor must meet in order to tick the boxes required to take on the task. Firstly, they must be happy to take on the job. It is a big responsibility and not a decision that should be made lightly. If your tenant provides a guarantor’s details, it can be a good idea to have a chat with them and make sure that they know what is being asked of them before they commit – it can be very tricky if you find yourself having to enter negotiations with a guarantor who was unaware of what they were signing up for! Most referencing agencies will only accept guarantors aged between 18 and 75, who are UK residents. A guarantor doesn’t have to be a relation, they can be a friend, colleague, partner or next-door neighbour, but they should have a good credit history. Local authorities, housing associations and social services can also act as guarantors for anyone that they have the duty of power to provide accommodation for.
Can multiple tenants share a guarantor?
Theoretically yes, but good luck finding one person to take on the liability of an entire household! In the case of house shares, it can be tempting to have one guarantor looking after the whole household – it certainly cuts down on the admin. However, if you have more than one tenant named on the tenancy agreement, it is always a good idea to ask each person to provide their own guarantor, who can financially manage that individual’s liability.
Do I have to issue any paperwork?
Yes. A guarantor needs a few bits of paperwork to formalise the agreement. The most important is the Guarantors Agreement, providing this document is a legal requirement under the Stature of Frauds Act 1677. Most guarantees are carried out using a deed, which means this document must be signed in person by all parties involved, and all signatures must be witnessed. Digital signatures are not acceptable here! You should also issue the guarantor with a copy of the tenancy agreement. They need to have a view of the tenant’s obligations, and a clear understanding of what the tenant has signed up for. You will also need to issue them with a copy of your privacy policy in line with GDPR. You are holding data on the guarantor in the same way that you are the tenant, so need to ensure you are fully compliant with the regulations in the same way.
How do I get rent back from a guarantor if I need to?
Firstly, have you tried getting the funds back from the tenant? After all, the debt that has been incurred does belong to them! It can be tempting to head straight to the guarantor, but do make sure you explore other avenues first. If you are coming up against dead ends with your tenants, and they are unable or unwilling to pay, the guarantor is the next port of call.
Make initial contact in writing, referencing to the Guarantors Agreement. Outline the situation (do remain business-like), including details of any arrears, damage, incurred costs etc. provide as much proof as you can, details such as bank statements showing lack of rent payments, rent schedules, photographs of damage and copies of inventories are all useful information. Post this document with proof of postage, and record when it was sent. Also, it is always a good idea to follow up any correspondence with an email. Hopefully at this stage they will pay any outstanding costs. If they don’t you can go to the Small Claims Court and file a money claim. You can decide at this stage to file against the tenant or guarantor, whichever you believe you will have the best chance of securing the outstanding funds from. You can also claim interest on money that you are owed. If you are claiming an unspecified amount, the interest will be worked out for you, if you are claiming a specific amount, you are required to add it in yourself.
What rights does a guarantor have to the property?
A guarantor has no rights to the property, and are unable to move in and take over the tenancy. If your tenant left the property, you could of course choose to let it to the guarantor under a completely separate tenancy agreement, after all, you have a preliminary check on their finances (it’s always a good idea to carry out a new reference though, things can change in the blink of an eye)!
Can a guarantor ‘opt out’ if they want to?
It is not easy to opt out of being a guarantor, however there are a few instances where it can happen:
You as the landlord can allow the guarantor to surrender their responsibilities. It is important that you, the tenant and the guarantor all understand the implications of this, and are happy with the changes. If this is something you choose to do, it is a good idea to formalise the change with a witnessed and dated document, signed by all parties – sort of a guarantor Deed of Surrender. If your tenant’s circumstances haven’t changed, don’t forget to get another guarantor in place. If the terms of the tenancy agreement change. For example, if you increase the rent. In this instance, the guarantee will come to an automatic end because the guarantor signed up to an agreement with rent set at X, and it has now been changed to Y. However, the guarantor will continue to be liable if the tenancy moves to a periodic agreement. Naturally progressing at the end of a fixed term on to a periodic does not negate the agreement.
The team at Hanna Properties are on hand to advise our clients if a guarantor would be recommended to reduce their risk and manage the paperwork to include as part of a tenancy agreement. If you have any queries on guarantors or would like further advice please do not hesitate to contact us.