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Guarantors

This content applies to England

Some landlords require a guarantee from a third party (a 'guarantor') that s/he will meet the obligations under a tenancy as a condition for letting a property to a tenant.

There is no restriction on when a guarantee may be required and it is common in lettings by a private landlord to:

  • students or other young people
  • people with a bad credit rating
  • housing benefit claimants, particularly where there will be a shortfall to make up.

What is a guarantee?

A guarantee is the guarantor's promise to pay the rent, and possibly to fulfil the tenant's other obligations under the tenancy, if the tenant fails to do so. It is an agreement between the guarantor and the landlord, regulated by the general principles of contract law. The express terms of the guarantee agreement are binding on the guarantor, so it is crucial to read and understand it before signing.

The guarantor does not become a party to the tenancy agreement between the landlord and the tenant (ie s/he is not a tenant), but if the tenant fails to pay the rent and/or causes damage to the property, the landlord can seek to recover payments from the guarantor.

Form and enforcement

There is a legal requirement for a guarantee agreement to be in writing.[1] Many guarantees are made by deed; if the guarantee is entered into after the tenancy agreement has been signed there is a requirement that the agreement is made by deed. A deed is a written agreement that states it is a deed, is signed by all parties to the agreement and the signatures are witnessed.[2]

Usually, the landlord will first try to collect rent from the tenant before trying to collect from the guarantor. The landlord can seek to enforce the debt against the tenant and/or the guarantor in the county court.

Who can be a guarantor

Normally a guarantor will be a parent or another close relative of the tenant.

Sometimes, a local authority's' housing[3] and social services department will act as a guarantor for someone they have a duty or power to accommodate.

Extent of the guarantor's liability

What the guarantee covers, and the extent of the guarantor's liability, is dependent upon the wording of the guarantee agreement. Some guarantees may cover only the rent but others will also include all other liabilities incurred under the tenancy, for example for damage to the property.

Fixed and periodic tenancies

There is no general rule either that a guarantee is limited to the fixed term of a tenancy, or conversely that it carries over into a periodic tenancy. Everything depends on what was agreed between the landlord and the guarantor.

If the guarantee agreement refers to the guarantor accepting liability for the rent and any other sums due 'under this tenancy/agreement', the inference is likely to be that the guarantee extends beyond the fixed term into the statutory periodic tenancy, unless there is evidence to the contrary.

Sometimes, there is no clear indication in the agreement. There may be only a basic guarantee clause referring to the guarantor being liable to the landlord for any unpaid rent and other liabilities under the agreement. It is arguable that the court should interpret that clause narrowly to refer to the fixed term only, the contrary position would mean that the guarantor would remain liable to the landlord for an indefinite period, and as the guarantor is not party to the tenancy agreement s/he cannot serve notice to terminate the tenancy.

If the guarantee agreement is not clear, any other evidence of what the intentions of the parties were, such as correspondence or oral discussions, may be relevant.

Joint tenancies

In joint tenancies, the guarantee agreement will normally cover the whole rent and/or other liabilities under the tenancy, unless it specifically states otherwise.

For example, the parent of a student renting a property jointly with other students will often be liable for the entire rent payable under the tenancy (and all damage caused by all of them or any of their visitors); not just a proportionate 'share'. In these circumstances, it is advisable for the guarantor to try to negotiate with the landlord and ask for the agreement to state clearly that her/his liability is limited to a specified proportion of the rent/damages (which will vary depending on the number of the joint tenants).

Variation of terms or rent

A guarantor's liability will cease on variation of the agreement, including changes to the rent, unless:

  • the agreement states that the guarantee applies in the event of any future variations or renewals, or
  • the guarantor expressly consents to the variation.

As such if the agreement refers to the guarantor accepting liability for the rent due 'under this tenancy', s/he will be liable for any rent increased in line with a rent review clause.[4] However, if a fixed term assured or assured shorthold tenancy expires and becomes a statutory periodic tenancy then a rent review clause in the fixed term agreement will no longer apply.[5]

Unfair terms

The terms of a guarantee agreement should be checked to ensure that its terms do not fall foul of unfair terms legislation. See the page Unfair terms and consumer law for details of the legislation and guidance on contract terms that apply before and after 1 October 2015.

Terms that may be unfair could include those that hold a guarantor:

  • liable for rent beyond the fixed term (ie where the tenancy has become a statutory periodic tenancy), or
  • liable for rent in the event of any variation or renewal of the tenancy, or (where there is a joint tenancy) liable for the default , including the non-payment of rent, of all joint tenants.

Government guidance for lettings professionals explains how the terms in tenancy agreement relating to a guarantor must be 'fair'.[6]

Wales

The information on this page applies only to England. Go to Shelter Cymru for information relating to Wales.

[1] s.4 Statute of Frauds Act 1677.

[2] s.1 Law of Property (Miscellaneous Provisions) Act 1989.

[3] s.24 Local Government Act 1988.

[4] Torminster Properties Ltd v Green [1983] 1 WLR 676 (CA).

[5] London Districts Properties Management Ltd and others v Goolamy [2009] EWHC 1367 (Admin).

[6] para 6.18 Guidance for lettings professionals on consumer protection law, CMA31, Competition and Markets Authority June 2014.

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