Guarantors

A guarantor agrees to pay a tenant's rent if they don't pay it.

If a tenant does not meet their financial obligations, the guarantor can be pursued for payment. This action may be in addition to or instead of pursuing the tenant.

A landlord may require a guarantor before letting a property, particularly if the prospective tenants are:

• students or other young people

• people with County Court judgments or defaults on their credit file

• housing benefit or universal credit claimants, particularly where there is a shortfall between the benefit entitlement and the contractual rent

There are no rules about who may be a guarantor. In practice, prospective guarantors are more likely to be accepted if they:

• have a good income

• have a good credit rating without defaults or County Court judgments

• are a homeowner

• live in the UK

The guarantor is likely to be a close friend or relative of the tenant.

A local authority housing or social services department may act as a guarantor for someone they have a duty or a power to accommodate.[1]

Guarantee agreements provided for money may constitute insurance, which is an FCA regulated activity.

Prior to agreeing, potential guarantors should consider the possible extent of their liability in case it covers:

• other tenants in a shared house

• damage to the property

• variations to the tenancy

• tenancies beyond the initial term

The guarantor has no right to end the tenancy, so they should consider an agreement that is limited to an initial fixed term.

Guarantors should be given a copy of the tenancy agreement, which can be checked for rent review clauses.

It may be possible to negotiate a payment of rent in advance instead of a guarantee. The guarantor could agree to be liable for a proportion of the rent if it relates to a joint tenancy.

A guarantee agreement must be in writing and signed by the guarantor. [2] Electronic signing is permitted.[3]

An exchange of emails may constitute agreement in writing if they are signed by the guarantor or a person authorised by the guarantor.[4]

Execution as a deed

Where the tenancy pre-dates the guarantee, the guarantee must be drawn up and executed as a deed. This applies whether or not the tenant has moved in. The valid execution of a deed imposes the following formal requirements:[5]

• the document must make it clear that it is intended to be a deed

• it must be signed by the guarantor

• the guarantor’s signature must be witnessed at the point of signing

The absence of a date does not invalidate a deed.[6]

Joint guarantors

If the guarantee names more than one person as the guarantor, they must all sign it. Failure to do so means it is not binding on any of the named individuals, including any who have signed.[7]

If all the joint guarantors have signed, they may be pursued individually or jointly.

Most guarantees for tenancy agreements cover unpaid rent and damage to the property. The guarantee only covers liabilities specified in the guarantee agreement, so if the agreement only mentions rent arrears it does not cover damage to the property.

The guarantor’s liability cannot exceed that of the tenant. The guarantor should check whether the tenant has a defence to money owed, or a claim against the landlord, for example:

• disrepair at the property

• a claim for a breach of the rules relating to tenancy deposits.

A guarantor cannot bring a claim for a breach of tenancy deposit protection rules unless they have paid the deposit on the tenant’s behalf.[8] If the tenant brings a successful claim it can be set off against arrears and reduce the guarantor’s liability.

Variations and new tenancies

The guarantee liability is confined to that in the initial tenancy agreement unless expressly stated. If the tenancy is for an initial fixed term with no express provision for it to continue afterwards, the guarantor liability will end. Any variation to the guarantee must be agreed by the guarantor. Otherwise, the guarantee will only be enforceable if the variation is ‘self-evidently insubstantial or non-prejudicial’.[9]

Increases in rent may be enforceable if the tenancy contains a rent review clause and the guarantee specifies rent due ‘under the tenancy’ (or similar).[10] 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 no longer applies.[11]

Unfair terms

Consumer contracts include tenancy agreements, and by extension guarantor agreements for tenancies. [12] This means rules about unfair terms apply. Government guidance for lettings professionals explains how the terms in tenancy agreement relating to a guarantor must be 'fair'.[13]

Where the tenancy agreement allows for a new contractual fixed term or periodic phase, the wording of the guarantee should be checked to determine whether the liability continues.

If the guarantee does allow variations, including rent increases or a contractual periodic tenancy, the court may release the guarantor from any additional liability if it substantially exceeds the amount they initially agreed to.[14]

If the guarantee purports to cover ‘any extension or variation’ to the tenancy this may be an unfair contract term, and unenforceable.

Other terms may be regarded as unfair if they:

• extend the tenancy automatically without giving the tenant enough chance to end it[15]

• alter the terms of the tenancy without a valid reason which is specified in the contract[16]

• claim large default sums if the tenancy is breached[17]

If the court finds that a term in a tenancy agreement or a guarantee is unfair, that term is not binding on the guarantor, but the agreement is still enforceable as if the unfair term did not exist.[18]

The Tenant Fees Act 2019 applies to guarantors for tenancy agreements.[19] This limits the rate of interest on unpaid rent to 3 per cent above the Bank of England base rate.[20]

A landlord or agent accepting a guarantee is automatically on notice that a guarantor may be pressured or coerced into agreeing.[21] This is sometimes referred to as ‘constructive knowledge’.

A guarantor’s defence of undue influence is more likely to succeed if the:

• tenant had a dominating influence over the guarantor

• guarantor was not given an opportunity to consider their decision

• guarantor did not have the benefit of legal advice

• guarantor is vulnerable or has difficulty managing their affairs

If a court decides a guarantee was obtained by the undue influence of the tenant, it will be rescinded (set aside).

The guarantor may issue a claim for a declaration from the courts that the guarantee was obtained by undue influence. The claim is made under Part 8 Civil Procedure Rules. There are costs associated with issuing the claim, and the guarantor may have to pay the landlord’s legal costs if the claim is not successful.

The guarantor could defend a money claim on the basis of undue influence. The costs are likely to be lower in amount, and if the claim is allocated to the small claims track, the guarantor will not normally be liable for the landlord’s costs.[22]