Many landlords now ask for a guarantor if they are not asking for a bond, the tenant is in a low paid job or if they feel that the tenant may have problems paying the rent. Where a guarantor has entered into an agreement, this means that in the event of a tenant being unable to meet their obligations under the tenancy agreement, whether it is for overdue rent or damage to the property, the guarantor is legally bound to accept the legal liabilities of the tenant and can be sued if they don’t comply. Use of a guarantor is like an insurance policy for the landlord or letting agent. As with most types of legal action, claims against guarantors have been on the increase in recent years so the role of guarantor is quite an onerous one and not one to be entered into lightly. The guarantor would usually need to be a home owner with steady long-term employment.
A Deed of Guarantee should be signed before the tenancy is signed, or should be ‘signed as a deed’ (which means getting the signature witnessed). There is a legal reason for this – the ‘consideration’ or benefit that the guarantor will get, is the fact of the tenancy being granted to the tenant. If the tenancy has already been signed and agreed, then there is no ‘consideration’ and the guarantee could therefore be unenforceable.
The guarantor should always see and approve of the tenancy agreement before he signs. A guarantor cannot be forced to pay up in respect of a tenancy agreement he has never seen. Where you have guarantors for tenancy agreements with joint tenants, it is not often realised that the guarantor is guaranteeing all losses. Joint residential tenancies carry joint and several liabilities – this means that if a parent is guaranteeing their child who is sharing with others, they are guaranteeing all the other residents on the tenancy agreement as well.
The guarantor will generally sign up for the fixed term of the tenancy. You can provide, however, for the liability of the guarantor to extend before the end of the fixed term by stating this in the Deed of Guarantee. The guarantor, however, will have the right to cancel this on notice (he cannot normally cancel during the fixed term). If you provide in the Deed of Guarantee for the notice period to be two months, then you can serve a Section 21 notice on the tenant if you receive notice of termination from the guarantor, and advise that he will need to find another guarantor as a condition of being allowed to stay in the property.
The current guarantee will be automatically cancelled if you sign a new tenancy agreement with the tenant, or if the terms of the existing tenancy agreement are changed – for example, if the rent is increased. In both of these circumstances you will need the guarantor to sign a new guarantee deed. The reason for this is that the guarantors can only be held responsible for the tenant’s liability under the terms of the tenancy agreement they have seen and agreed to. If these terms are changed, they have to approve this before they can be held liable under it. Credit checks, referencing and identity checks should be carried out on a guarantor just as you would with a tenant.