Guarantors: The Essential Safety Net

I am continually surprised at the number of landlords who do not insist on having a Guarantor in place to support a tenant application even when the tenant referencing results may have recommended one. So this month we will look at how you can use a Guarantor effectively in your tenancies.

For the novices amongst you, a Guarantor is the person or persons who will indemnify the landlord against the failure of the tenant to perform any obligations of the tenancy. In essence, if the tenant doesn’t pay the rent, the Guarantor will be asked to.

Guarantors are generally used to support applications from those in receipt of Housing Benefit, or for student lets where the student tenants do not have a salaried income.
What many people fail to appreciate is that they can also be a useful security net for working tenants who may be in contract employment on zero hours contracts; the self-employed who do not have accounts; or those on probationary periods.

The Guarantor should be referenced in the same way as the tenant, but the ratio of their income against the rental amount will be slightly different to the calculation for the tenant; it is assumed that the Guarantor has their own housing costs in addition to the obligation they are about to take on. Broadly speaking the Guarantor should have an income of three times the annual rent of the property. Therefore if the rent is £750 a month, you would be looking for a Guarantor with a gross income of at least £27,000.

To be enforceable, the Guarantor’s obligations must be made clear to them. You can either add these to the tenancy agreement, meaning that the Guarantor becomes a party to the tenancy and signs in confirmation, or alternatively you can create a separate Guarantor Agreement which they would agree
to and sign.

A key issue is to ensure that your agreement makes provision for the Guarantor remaining liable after the fixed term of the tenancy, so that you still have protection in the event that the tenancy is allowed to become periodic. Furthermore it must be clear that the Guarantor is unable to revoke their obligations whilst the tenancy is running.

The Guarantor should be made aware that this is a significant undertaking. Not only are they not in control of how long the agreement could run for but there is also no limit as to their liability. Whist they should verify being able to cover the rent if required, they will also be liable for putting right any damage or breakages considered beyond fair wear and tear. Their liability could run to many thousands of pounds.

The Guarantor is typically a family member of the tenant, and the simple fact of them being part of the tenancy can render rental payments more likely to be paid. Many a time have I used the… “If we don’t receive the rent by close of business tomorrow then I will have to contact your Guarantor” … warning – then managed to recover the rent without having to make that call.

The real benefit of a Guarantor is where, at the end of the tenancy, there are arrears or damages that far exceed the value of the deposit. In these cases you are far more likely to be able to successfully recover the money from a working, and possibly home-owning Guarantor, than you would from a tenant with limited or no means.

Indeed, the thought that the Guarantor may be forced to pay is often enough for the tenant to ensure the property is left as it should be.

To illustrate this point, I once dealt with a tenancy situation where the property had been badly and wilfully damaged by a tenant who was angry that his partner had recently left him. The landlord asked him to pay for the damage but the tenant rudely refused and proclaimed that he had a number of court judgements for debt against him as a result of the separa-
tion – and one more wouldn’t make any difference! Fortunately, the landlord had a Guarantor in place who had a very different attitude: a homeowner with a prestigious job, frightened that their credit standing could be impaired. Within half an hour, the Guarantor and the Landlord had agreed a payment plan for the whole amount.

Landlords around the Country tell me that because there is an acute shortage of stock, they can let property very easily. If this is the case, there is absolutely no need to compromise on security.

So your challenge for this month is to start using, where appropriate, a Guarantor with your tenancies. I can assure you that one day in the future you will be very glad that you did!