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GUARANTORS IN TENANCY AGREEMENTS - TIPS FROM LETTINGFOCUS.COM

Letting Focus.com explains the facts about guarantors and deeds of guarantee in student lets and other types of residential tenancies used by landlords and tenants.

Property expert David Lawrenson of www.LettingFocus.com says, "Lots of landlords, especially those in the student lettings market, depend upon guarantors to guarantee tenants' rent payments and against any damage tenants may cause."

However, there are lots of traps that a landlord can fall into which can mean the guarantor agreement that they thought they had is actually worthless when they come to claim on it.

Many landlords use guarantors to ensure that someone (with money) will pay the rent in the event that the tenant defaults or damages the property.



STUDENT LETS, GUARANTEES AND LETTINGS

But whilst guarantors are often associated with the student market, they may also be used for any tenant who a landlord thinks may struggle to pay the rent (low income or benefit dependent) or otherwise fail to look after a property in a “tenant like manner.”

They are also used (though less often) in company lets where a director may act as a personal guarantor on a company let for a small company.

Whichever type of tenant market you are letting in, you should carefully check out the guarantor and ensure checks on them are as thorough as any reference check made on the tenant.

It is essential that the guarantor is a home owner in the UK - the reason being that it’s much easier to recover money from someone who owns a property in the UK than from someone with no recoverable assets in the UK at all. And it is easy to check if someone owns a property in the UK on line for a fee of just four pounds at the land registry.



SHARED HOUSES AND GUARANTORS

One of the big issues for guarantors in shared houses such as student accommodation is the fact that in all tenancy contracts with more than one tenant, each tenant is jointly and severally liable for the whole rent and for the whole property in the agreement.

This also means that where a single agreement exists to cover an entire house, each guarantor is in fact responsible in theory for the entire rent because under “joint and several liability” the landlord, can sue any party to the agreement to recover losses.

Unfortunately, many parents of student offspring may not realise this – or where they do, they may not like it.

So, it means that whilst they are comfortable with covering Toby or Amelia’s share they are not happy to cover Toby or Amelia’s friends with the funny haircuts and the drug problem.

 

HOUSE SHARING, TENANCY AGREEMENTS AND GUARANTORS

So, if the carpet that was ruined was in Toby’s druggie housemates’ room, you still have every right to pursue Toby’s parents – even though it was not nice Toby's fault. And you may well want to do this if the chances of recovery are better from Toby’s parents.

It’s tough on the tenants and the guarantors but its not your job to arbitrate between tenants and their guarantors nor chase up lots of different guarantors for money owed to you!

The alternative, of course, is that each tenant signs individual agreements for their room and for the shared use of common areas.

However, the admin involved with this can be a nightmare and you will have to issue a new agreement each time someone moves out, which can be quite a hassle.

The other alternative is to get the parents to pay up in full in advance for the period of the tenancy - though many will not want to do this.

 

HOW TO SIGN UP A GUARANTOR ON A TENANCY CONTRACT

There are two ways to sign up a guarantor.

First, you could make it part of the tenancy agreement itself and with a special clause attached at the bottom which sets out the liability of the guarantor - or you could do a “special deed of guarantee”.

Whichever route you go, make it clear that the guarantor is liable for money due from the tenant as a result of rent due and / or unpaid and as a result of any breach of any covenant in the tenancy agreement and which is unpaid for a set period.

Also, make it clear in the guarantee that the landlord will first make a written demand on the guarantor at the address which the guarantor has provided in the guarantor document (or any other address which he later gives.)



DEEDS OF GUARANTEE

Obviously, if you use a separate deed, the guarantor must be given a copy of the tenancy agreement so he knows what he is guaranteeing.

It is best if the document is signed as a deed and the signature of the guarantor must always be witnessed at the same time by an independent witness.

You’ll need to check that the address the guarantor has given is their correct address.

Finally if the old tenancy is replaced, you’ll need a new guarantee too.

 

MAKING A CLAIM


If the tenant defaults you will need to make a formal claim in which you will refer to the guarantor deed and state exactly what you are claiming for.

If there are damages, state clearly which items are damaged and how much they cost to repair or replace. If they request it, you will need to provide a copy of an invoice, receipt or estimate.

If the guarantor does not pay up, you will need to bring a claim in county court in the usual way.

For one to one advice on this complex area ask me.

 

ABOUT DAVID LAWRENSON AND LETTINGFOCUS

At LettingFocus.com our main work is our consultancy role in which we help organisations and public bodies with their products and services for the private rented sector. If you are from an organisation go to our home page: LETTING FOCUS HOME PAGE.

we also offer a limited amount of unbiased consultancy advice for landlords. Check the links below and to JOIN our Free QUARTERLY NEWSLETTER simply send an email - Please note we WILL NOT send spam or sell our mailing list to advertisers!

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Copyright 2011 David Lawrenson. This article must not be copied or re-used without the author and copyright owner’s prior permission. 

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