Guarantors: What are they for?

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.

It is a good idea to have guarantors referenced in the same way you do a tenant. Let your referencing agency know that you are referencing a guarantor, as the earnings ratio is slightly different. For tenants, referencing agencies like to see that the individual has an annual household income of 30x the monthly rental rate (for a £500 a month rent, the tenant would have to earn £15,000 a year). For a guarantor, this figure increases to 36x the monthly rent (guaranteeing a £500 a month rent, the guarantor would have to earn £18,000 a year).

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.

What if my tenant can’t provide a guarantor?

A guarantor is not a legal requirement, so if your tenant cannot provide a suitable person, it’s not the end of the world. There are a few options open to you.

You can take a view on whether you want to proceed with them as a tenant without the added protection a guarantor brings. There are plenty of insurance products available which offer some degree of protection from unpaid rent, however few offer protections from damages as well.

You can move on. If you are concerned, it may be a better idea for everyone to part company and explore other options. After all, if you are concerned that your potential tenant may struggle with affordability, why would you want to put them through the stress and concern around scraping the rent together every month – it’s a horrible situation for everyone to be in, and best avoided if possible.

You could introduce a third party. There are organisations that provide guarantor services for tenants who are unable to provide a guarantor themselves. There is a cost associated with this, however.

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. You can use one guarantor for the debts of all parties – this is known as taking ‘joint liability’, however it might be tricky convincing one person to take that hefty job on.

Whilst you don’t want to think about worst-case-scenario, this is especially important in the case of couples sharing a property. It is very simple to just accept one guarantor for the lovebirds, after all, what could possibly go wrong? Well, it may be roses round the door in the early stages, but if things don’t work out, it’s comforting to know that your two separate tenants are now covered by independent guarantors.

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. Details of how to do so are available here.

You can start the court process online here if you are claiming for a fixed amount of money. Alternatively, you can download and fill out a paper form here. There is a fee to pay, which varies depending on the amount that you are claiming for. Carrying out the service online is significantly cheaper.

Once a form is filed, your defendant (the guarantor) has the opportunity to pay, or respond – you’ll be sent a letter from court stating the date by which they have to respond. If they fail to respond to the claim, or else admit they owe the money but still fail to pay, you can request that the court orders the defender to pay. You can make this request using an online form (if you filed online), an N225 form if you requested a specific amount, or a N227 for if you claimed an unspecified amount.

If the guarantor does respond, and claims that they do not owe you any money, disagrees with the amount you’re claiming or does not agree with repayment terms, you may have to attend court to formally settle the situation.

In this instance, you may be sent a questionnaire, asking for more details on the case, which you should answer as comprehensively as possible – another fee will be payable. If your claim is for under £10,000, you will be asked if you would prefer to use the court’s mediation service to resolve the issue without attending court. This is your decision, but do bear in mind that a judge may take a dim view if you don’t appear to be willing to give mediation a go – it’s worth a try and you are able to progress to court is an agreement can’t be made.

If you do attend court, you can choose to represent yourself or ask someone else to represent you – they don’t have to be a legal representative. Once you, and the defendant have both been heard by the judge, a decision will be made. If the court rules in your favour, the defendant will be required to pay.

If they fail to, you can:

• Ask the court to enforce the order (collect the money on your behalf)
• Instruct bailiffs
• Request money is collected from the defendant’s wages
• Freeze assets in a bank account
• Place a charge on the defendant’s land or property

It is worth remembering at this stage that the debt that you are claiming wasn’t actively caused by the guarantor.

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.

Your Guarantors Agreement may include a termination clause, allowing the guarantor to withdraw given enough notice. This may be included if a company is providing guarantor services for an employee, and wish to have the option to opt out should the employee leave the company.

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. They are under no obligation to honour the agreement as they didn’t sign up to those terms!

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.