What is a guarantor?
Renting your property to new tenants can be a little daunting – even if you are an experienced landlord. Whilst there are many checks in place that help to prevent unreliable tenants from renting, like referencing, sometimes extra assurance is still needed to make renting a safe and reliable process for all parties. If you have any reservations about renting to prospective tenants, then you should consider using a guarantor. If you’re unsure of what exactly a guarantor is or when you can request one, then read Hamilton Fraser’s helpful guide below, where we outline all you need to know about the subject.
So, what is a guarantor? In the simplest terms, a guarantor is someone who can guarantee rent payments and other rent obligations for tenants. Having a guarantor helps to protect and ensure rent payments, should the tenants fall into arrears or default on the tenancy agreement.
Who can be a guarantor? Anyone over the age of eighteen can become a guarantor, as long as they are a UK resident, are able to cover the cost of rent, and have good credit history. For many tenants, this usually means asking a parent, relative, or friend. Finally, guarantors should also be homeowners themselves. International students and some professionals, however, can also use the services of rent guarantor companies that act in the same manner as a UK resident guarantor.
There are some tenant circumstances where you, as a landlord, can request the use of a guarantor for extra assurance. If a tenant does not meet one or more of the criteria from the list below, then using a guarantor can provide a safety net when offering a tenancy.
- Tenant(s) has not worked for their current employer for longer than six months
- Tenant(s) is below the age of 21
- Tenant(s) has a low or non-existent credit score
- Tenant(s) has not lived at the present address for more than six months
- Tenant(s) is a student
- Tenant(s) has an income below the safe affordability line – typically the rent should be no more than one-third of income
If you feel that using a guarantor is the best way to proceed with renting to prospective tenants, then there are a few steps that should be taken before a guarantor agreement is signed. Guarantors need to be credit checked and referenced, the same way tenants would. They must also demonstrate that they have sufficient funds to cover rent and any other liabilities, should it become necessary.
Something that is not widely known by tenants, guarantors, and landlords alike, is the extent of liability in joint tenancy agreements. It is important for a prospective guarantor to be aware that, in such instances, by acting as guarantor for one of the tenants they are effectively acting as a guarantor for all the tenants during the joint tenancy agreement. Similarly, sharing tenants have an obligation to cover any missed payments or potential damages under a joint tenancy agreement.
Another point to be aware of, is that a guarantor cannot be held liable for responsibilities that they were not fully made aware of prior to taking them on. Any obligations you wish to be covered under the guarantor agreement must be clearly outlined in the tenancy agreement and comply with the Office of Fair Trading guidelines, since guarantors can withhold payment if the terms of an agreement are deemed unfair.
Guarantors must confirm seeing and approving the tenancy agreement they are guaranteeing prior to the tenants singing it. Ensure that it is explicit on the following points and terms:
- The tenancy in reference – full details of the property and its location
- The tenant(s) in reference – full name of each tenant, after identity verification
- The tenancy agreement and obligations – give the guarantor plenty of opportunity to read and question any points of the tenancy agreement prior to its signing and witnessing, as this will assist in minimising any potential disputes in the future
The guarantor agreement, once signed by the relevant parties, must then be signed and witnessed as a deed.
A guarantor’s consent will be needed for any future changes to the tenancy agreement, such as a tenancy renewal, since making amends without the consent of the guarantor will void their liability. Guarantors should be given ample time and communication with regards to any proposed changes if you want to continue benefiting from the guarantor agreement.
Even with a guarantor agreement in place, it is nevertheless best for landlords to take out comprehensive landlord insurance, so that they are covered should the unexpected happen. To protect yourself against any potential financial losses, Hamilton Fraser can help – providers of award-winning landlord insurance and comprehensive cover for landlords since 1996.
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