Rental guarantees - worth the risk?
The residential rental market is increasingly competitive, and many people are asked to provide a rent guarantor, even when in full time employment.
A Guarantor will usually have to agree to pay the rent and honour the other obligations of the tenancy agreement if the tenant doesn’t do so.
If you are asked by a family member or friend to act as their rent guarantor, do you know what financial and legal responsibilities you are letting yourself in for, if the guarantee is ever called upon?
There is a legal requirement for a rent guarantee agreement to be set out in writing which details the guarantor’s legal obligations. Many landlords will also carry out a credit check on the guarantor to check their ability to pay. The tenancy agreement should not be signed before the guarantor agreement.
Depending on how the guarantee agreement is worded, the guarantor will also normally be liable for other obligations such as for damage caused to the property. This is why it is so important for the guarantor to check the agreement and make sure they understand their obligations before they sign it.
The guarantor should also make sure that if the accommodation is shared with other tenants under one tenancy agreement, that the guarantee only applies to the person they are happy to be a guarantor for, for the duration of that person’s occupation and not for the other sharers.
The guarantor’s liability will continue for all breaches of the tenancy agreement which are covered by the guarantee until the tenancy is legally ended, which means on the date when the property is handed back to the Landlord on or after:
• The date specified in a valid notice to quit by the tenant.
• The date of a mutual surrender of the tenancy between the landlord and the tenant, or.
• The date specified for delivery up of possession in an order granted by a court.
If there is a change in the tenancy agreement, the guarantor’s liability may come to an end unless the agreement says the guarantee applies to any future changes or renewals, or if the guarantor consents to the change.
It may be possible for the guarantor to negotiate a change to the terms of the guarantee agreement, for example to only guarantee the first year of the agreement which helps limit liability.
A ‘real-life’ situation which I provided comment for, published in The Times Newspaper in 2021 was in relation to a financial question from a reader which is worth mentioning to highlight some of the issues for guarantors. In this instance, the parents were acting as a guarantor for their son who had mental health issues. Their relationship broke down and he paid no rent, and the landlord won an eviction notice against him. Despite this, and a pending court appearance for causing £20,000 damage to the property, the son refused to hand over the keys, so the parents were still liable for the monthly rent. The situation was also compounded by the timing of it and the restriction on evictions during the Covid pandemic.
There was little the parents could do in this situation, and they needed specialist legal advice to take into account the full circumstances, but it does highlight how a situation can escalate beyond anything imaginable and leave you in a very difficult financial situation and facing huge losses.
As always it is important to make sure you understand the terms of any legal agreement you sign and if necessary, take legal advice before signing it. If you would like to speak to a solicitor about a potential property dispute, get in touch with our litigation team today.