Guarantors and surety are legal obligations by a third party to make sure rent is paid and damages paid for in commercial and residential properties.
There are a number of reasons why a landlord would ask for a guarantor when renting a property to someone. Usually it is for students or young people with no credit history, but sometimes it can be for other reasons such as:
• The tenant has a poor credit score due to debts, court orders or bankruptcy
• They are on low income or have just started a new job
• They have moved about a lot in the past few years or have lived abroad
• They are unable to provide a reference from a previous landlord
The guarantor is the landlord’s insurance policy against the tenant defaulting on payments or refusing to pay for damage caused whilst in that property.
With commercial tenancies it is common to need a guarantor. These are usually the directors of the company and are needed if it is a new business or has few assets.
In either case it is essential for a Landlord to be checked out and referenced just as they would do for a new tenant. The checks include:
• Basic check
• Comprehensive check with references
• Rent guarantee and legal cover
• Company check
• Tenant tracing
• Debt collecting
There is no doubt about it, being a guarantor is high risk. The worst case scenario is that you have to pay off someone else’s debt. On the flip side, you could be the guarantor for a tenant who pays up on time and causes no problems at all.
If you are thinking of becoming a rent guarantor then there are a few things to bear in mind. With claims against guarantors on the rise the prerequisites for standing surety are becoming more strict.
You will nearly always have to prove that your income is over a certain amount and quite often you have to be a home owner. You will be asked various questions to back all of this up such as employer details, national insurance number, bank details and contact details. A background check will be done on all of these things before you will be signed up as the guarantor. It is important to note that the process can be quite lengthy and time consuming. A check on your credit history may also be required, depending on the agency carrying out the checks.
Once you have been given the go-ahead you need to sign the guarantor agreement and you must make sure you are clear about what your obligations are. Feel free to take the agreement to your solicitor to check before signing anything.
Make sure you check the following:
• That you are only responsible for the named person and not for everyone listed at that property
• How much are you liable for
• How long you are expected to be guarantor for
• How soon the landlord will contact you if a tenant has missed a payment/caused damage
• What the landlord will do if the tenant goes against any of the terms in their tenancy
Be aware if you are filling in the application form online that the legal agreement might be tied into the part where you submit your personal/employment details. Always double check if you are unsure as it will be too late to change it afterwards.
Remember that there is no standard form or statutory agreement so read it carefully as the wording will be strictly enforced by the courts should it come to that.
In extreme cases the guarantor may be forced to sue the tenant for damages and take over their tenancy in order to be able to cancel it.
With commercial leases be aware that you may be legally required to be the guarantor for several years. This could cause problems if the business fails or the tenant changes the lease terms to the disadvantage of the guarantor.
Being a guarantor is partly based on trust and you must be sure that you completely trust the person you are acting as guarantor for. It is also important to be financially capable should the worst happen. Don’t just enter into it to be a helping hand to someone in need. Be certain in order to stay safe.
‘Simple Landlords Insurance’