What do I need to know about taking a Guarantor?
It is usually appropriate to ask for a guarantor where a tenant Applicant is young (e.g., student), just starting a new job, business or self-employed, or is on the “border line” with their credit or affordability score.
When is a guarantor required?
Guarantors provide an extra element of security for the landlord by guaranteeing to pay rent or damages should the tenant default. Guarantors are usually required when the tenant:
- Is a student or unemployed
- Is in receipt of Housing Benefit. A pre-tenancy determination which is equal to at least 85% of the rental amount will be required by the local authority Housing Officer
- Has not been in continuous full-time employment for at least 6 months.
- Has a rental commitment which is more than 40% of annual income
- Has recently arrived from overseas to take up employment
- Has an adverse credit history
- Has failed a TenantVERIFY® Basic or Comprehensive Check
We will always recommend a guarantor where the report result is “Accept with Caution” which means that this is not an outright decline, but there is some doubt about one or more aspects of the Checks.
Note: Guarantors must have seen and approved the rental agreement before signing a legally binding tenancy agreement or deed of guarantee.
What are my choices if my Applicant fails a Check?
Where at prospective tenant achieves a result in our “Caution” range, you may want to consider these options, depending on your other screening outcomes:
- Reject the tenant outright on the grounds that he or she does not meet the financial or other criteria for your tenancy.
- Take all or a considerable proportion of the rent in advance, for example, with a 6 months AST you could take the full six-months rent in advance.
- As option two is unlikely to be viable for most tenants in this position, a good alternative and often a very good solution is to take a guarantor.
What is required of a guarantor?
Guarantors should normally be home owners (not absolutely essential but we always recommend this) and of sufficient financial means or earning capacity to comfortably pay the rent and other tenancy obligations should your tenant default. You will be asking for proof of earnings.
A guarantor is usually someone close to the tenant (a relative, though friends and employers can sometimes oblige) who will provide contractual assurance that rent and any damage will be paid for before or at the end of the tenancy in the event of default.
What about the guarantor agreement?
Guarantors MUST have seen and approved the tenancy agreement they are guaranteeing prior to the tenant signing it, and they must also sign a Deed of Guarantee (Guarantor Agreement). This deed MUST be witnessed.
Some tenancy agreements come with a guarantor agreement included, which makes the guarantor a party to the contract, but otherwise you will need to obtain a separate guarantor agreement.
Landlords and agents should bear in mind that any variation in the tenancy, including the fixed-term coming to an end and tenancy renewal, rent increase, claims for damage etc., if done without the guarantor’s knowledge will discharge the guarantor’s liability.
It is therefore very important to inform all parties of any change or claim, sending correspondence to all those involved on every occasion.
The guarantor may need to sign a new guarantor agreement on tenancy renewal if you want their obligations to continue. This is the case where a standard form guarantor agreement has been used. Where the agreement has been negotiated it might be possible to hold the guarantor responsible even when the agreement is renewed, or in other words, until the tenant leaves.
You need to carry out credit checks, referencing and identity checks for a guarantor just as you would a tenant.
Some Useful Documents
See our User Guide here
Our Advice on Tenant Screening, a 20 point Checklist here