Using a guarantor

What is a guarantor?

A guarantor is simply an individual, often a close relative that undertakes to assume the financial liabilities of the tenant including paying the rent in the event that they stop. Where a guarantor enters into an agreement he or she normally agrees to meet the full obligations under the tenancy agreement on the tenant's behalf. This may include rent arrears, damage to the property, or other liabilities and obligations arising from the tenant's failure to comply with the lease covenants. The guarantor is contractually bound to accept these legal liabilities of the tenant and will be sued if they don't comply. They would usually need to be a home owner with steady long-term employment if she is to satisfy the requirements of a good credit score to become a guarantor.

When should I use one?

Sometimes, the vetting process throws up results that are less than conclusive. Does the tenant struggle on the affordability test? In which case if you like the look of them you could always consider using a guarantor.

The use of a guarantor is particularly useful for the following types of tenants who are likely to produce a low score in any referencing process:

• students
• low paid individuals
• individuals with a chequered employment history

How to sign them up

Once the tenant has found an individual who is prepared to act in this way; the prospective guarantor should be then subject to the same credit check that the tenant undertook. Assuming that they ‘check out’, then try to meet the guarantor in person early on in the process to explain exactly what is entailed. Once they understand the process and they are still prepared to proceed, then you will need to get them to sign a Deed of Agreement. It is worth pointing out that it has to be a Deed to be enforceable under contract law. It’s always a good idea to get the guarantor to sign a copy of the tenancy agreement to prove that they were aware of what they were signing up to.

I also prefer the guarantor to be a homeowner. This has several advantages. Firstly, especially if they have lived there some time then the chances are that even if the tenant ‘does a bunk’ they won’t and you will be able to contact them. Secondly, the fact that they are a homeowner means that it is likely that they have some collateral, therefore if you do take action to reclaim your money they have assets which you can claim against.

You can check that the guarantor owns their own property by doing a search on the Land Registry Website at www.landregistry.co.uk . The search costs £2 to execute.

It worth reiterating the point that in a situation where the tenant has limited financial resources, the evidence points to the fact that there is a much higher chance of reclaiming any debts from the guarantor than from the tenant.

‘Big Mike’ the ideal guarantor

A letting agent friend told me about the ideal guarantor. His name is ‘Big Mike’. He is 6ft 5’, tattoos and a body builder. Nobody messes with ‘Big Mike’. On the face of it as a landlord your initial thoughts are that you don’t want any dealings with this guy. However, ‘Big Mike’ is actually the landlord’s best friend and this is why. For instance the tenant stops paying rent. You sent the tenant a letter with a copy to ‘Big Mike’. Still no rent so you reluctantly go to ‘Big Mike’ for the money as guarantor. Now ‘Big Mike’ isn’t happy that he is suddenly in a situation where he has to cough up the rent for the tenant. If you as a landlord started calling on the tenant, even sending a fax to their work place this would constitute a legally actionable case of harassment. However, ‘Big Mike’ unconstrained by such flimsy bits of legislation is able to exert the appropriate level of ‘encouragement’. Low and behold the tenant suddenly finds the ‘readies’ and the tenancy is back on track!

Chris Horne (39) a qualified town planner and surveyor as well as being the author of the ‘Landlords Bible’ has been involved in all aspects of property from working as a planner in a local authority dealing with planning applications to being a consultant in the oldest surveying practice Drivers Jonas in the West End of London, and working for English Partnerships in the Midlands. He is now a full type landlord and investor. Chris has also started the website http://www.propertyhawk.co.uk a site aimed directly at UK Landlords. The site incorporates free property management software that enables landlords to track all the financial data relating to their portfolio. It allows users to print tenancy agreements and other forms. The site generates a real time rent book for each property as well as calculating a landlord’s tax liabilty. The service is totally free to use at http://www.propertyhawk.co.uk . The Landlord's Homepage.