What is a guarantor and who can be one? - Total Landlord Insurance

July 18, 2023
Total Landlord Insurance
What is a guarantor and who can be one? - Total Landlord Insurance

Renting your property to new tenants can be a little daunting – even if you’re an experienced landlord. 

While there are many checks you can do to help prevent you from renting to unreliable tenants, sometimes you need that extra assurance to make renting as safe and reliable a process as possible.

If you have the slightest reservations about renting to prospective tenants, or you’re worried that they won’t be able to pay the rent, then you should consider using a rent guarantor.

If you’re unsure of what a rental guarantor is or when you can request one, then read our helpful guide, where we outline all you need to know about the subject.

What is a rent guarantor?

In the simplest terms, a rent guarantor is someone who can guarantee rent payments and other rental obligations for tenants. Having a rental guarantor helps to protect the landlord. It makes sure rent payments are made should the tenants fall into arrears, and it will compensate the landlord should the tenants default on the tenancy agreement in some other way.

For tenants, having a rental guarantor can provide security and peace of mind. They can enjoy the safety net of guaranteed financial support rather than borrowing and repaying a loan, but this calls for a good deal of trust on the part of the guarantor.

Who can be a rent guarantor?

Usually, the minimum age requirement for a guarantor is anyone over the age of eighteen and a wage earner. As long as they are a UK resident, can easily cover the cost of rent out of earnings, and are able to provide a satisfactory credit report, they can be considered. Finally, guarantors are usually required to be homeowners themselves.

For many tenants this means asking a parent, family member, relative, or friend to agree to be a guarantor. If a tenant can’t find someone to act as a guarantor they can usually opt to use a rent guarantor insurance company.

Rent guarantor insurance companies act in the same manner as a UK resident guarantor and are ideal for international students, people in receipt of benefits and other parties who can’t provide a suitable guarantor.

How much does a guarantor need to earn?

The amount a guarantor needs to be earning will depend on how much rent would need to be covered if there was a claim. As a guide, letting agents or landlords will only accept guarantors that earn three times the annual rental.

Some agents or landlords will simply need the guarantor to verify that their income is sufficient to cover the tenant’s rent, but more likely checks will include a credit score check and a reference from their employer to verify earnings.

If the guarantor is self-employed, they will usually be required to provide a reference from their accountant to verify average earnings over a number of accounting periods.

Does a guarantor have to be a homeowner?

Most letting agents and landlords say that a guarantor needs to be a homeowner. This gives the landlord the added security that the guarantor has fixed assets to call upon in the event of a claim and that he or she cannot simply “up sticks” and disappear.

Can a pensioner be a guarantor?

Pensioners or people who are retired can act as guarantors but generally they are required to show they have a regular income which is sufficient. These requirements will vary from one credit reference agency to another but generally, as long as the person has sufficient funds to cover the rental payments, they can be a guarantor.

Pensioner and retired income can include part-time earnings, state and private pensions, pension drawdowns, savings and other liquid assets.

When should you use a guarantor?

There are some tenant circumstances where you, as a landlord, can request the use of a rent guarantor for extra assurance. Some landlords now insist on a guarantor as a matter of course and when the rental market is hot they can pick and choose between tenants.

If a tenant does not meet one or more of the criteria from the list below, then using a guarantor can provide a useful safety net when offering a tenancy:

  • Tenant has not worked for their current employer for longer than six months
  • Tenant is below the age of 21
  • Tenant has a low or non-existent credit score
  • Tenant has not lived at the present address for more than six months
  • Tenant has lived abroad with no UK credit history
  • Tenant is a student
  • Tenant has an income below the affordability line – typically the rent would be no more than one-third of income

When can a landlord contact a guarantor?

The landlord can contact a guarantor to recoup unpaid rent from the day after it falls due. The guarantor is not legally required to pay anything until they have been asked by the landlord or agent. The landlord and tenant might work out a repayment plan between themselves, without involving the guarantor at all, or through a tenancy mediation service such as Total Landlord’s partner, The Property Redress Scheme’s Tenancy Mediation Service. If that happens, the guarantor doesn’t have to do anything. 

Other important considerations when using a rent guarantor

If you feel that using a guarantor, or arranging a guarantor loan, is the best way to proceed with renting to tenants, there are a few steps that should be taken before a guarantor agreement is signed.

Guarantors need to undertake credit checks and obtain references, the same way tenants would. You still need to do these checks on your tenant/s. You can read more about referencing in our ultimate guide. The guarantor must also demonstrate that they have sufficient funds to cover the monthly 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 a joint tenancy (where there are multiple occupants, typically a student house) by acting as guarantor for one of the tenants in a joint tenancy, they are effectively acting as a guarantor for all the tenants.

This is what’s known as “joint and several liability” where each tenant is effectively responsible for all of the rent should others default. Read more about joint and several tenancies in mydeposits guide to deposit protection for joint tenancies.

One way around this seemingly open ended liability for the guarantor is to specify that their own liability is to be limited to the rental amount for their own relative. This may need legal assistance to amend the guarantee agreement correctly, but in any case guarantors should seek legal advice before entering into any guarantee agreement.

Another point to be aware of is that a guarantor cannot be held liable for responsibilities that they were not made fully aware of prior to taking them on, so giving an opportunity for the guarantor to read and ask questions about the agreement before the start of the tenancy is essential.

To be enforceable a guarantor agreement must comply with the requirements of the Unfair Contract Terms Act 1977 and the Government’s Unfair Contract Terms Guidance.

There’s no standard form of guarantor agreement (contract) or a statutory agreement for guarantors so the contract will be interpreted and strictly enforced by the courts at face value. It is important therefore, if these agreements are to be enforceable, to make sure they are properly drafted – always seek legal advice.

The guarantor agreement must as a minimum identify clearly the tenancy to which it applies, the parties to the agreement and the property and its address / location.

As there is no consideration in the guarantor contract as such, the document must be signed by the relevant parties and witnessed as a deed.

During the course of the tenancy, if anything changes such as the tenant falling into arrears or serious damage to the property occurring, then the guarantor must be informed in writing immediately, giving them a chance to take remedial action themselves.

Generally the guarantor’s liability extends to the length of the fixed term tenancy, at which point the agreement would need to be renewed should the tenancy continue beyond the fixed term. It may be that if the tenant has proved reliable during the first term the landlord may decide to proceed without a guarantor. Alternatively the agreement could be drafted so that it continues into a periodic tenancy, but this needs careful legal consideration.

In view of the pending changes to residential tenancy laws in England - The Renters (Reform) Bill – tenancies will be continuing periodic tenancies from day one. Future guarantor agreements will need to be drafted to take this continuing liability into account.

Even with a guarantor agreement in place it is essential for landlords to take out comprehensive landlord insurance, so that they are covered for accidents and damage should the unexpected happen.

To protect yourself against any potential financial losses Total Landlord - providers of award-winning landlord insurance and comprehensive cover for landlords since 1996 - can help.

This article refers primarily to English law. It is not a definitive interpretation of the law. Every case is different, rules change over time and only a court can decide - always seek expert advice before taking action or not.

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