Tenancy Agreement 31 days of tips - Day 8

This is day 8 of my 31 days of tips on tenancy agreements series. To see the rest of the series click here.

Deeds of Guarantee

So. You have found the ideal tenant. He has a nice personality, no unpleasant personal habits, and you feel sure that he would look after the property. The only problem? He is in a low paid job and you are worried about his ability to pay the rent. What can you do?

The answer of course is to take a guarantee. This is done as a matter of course for student lets, and increasingly is being asked for other tenants, who landlords feel may have problems paying their rent.

There are two ways this can be done. Probably the simplest is use a tenancy agreement which includes a guarantee section and which the guarantor signs as well as the tenants. The problem is however is that where you have a lot of tenants (as in many student lets) the document becomes unwieldy if they all have their own guarantor.

Often also the guarantors cannot come to your office to sign, so the paperwork needs to be sent out to them for signature. It is not a good idea to send out the original tenancy on a ‘round robin’ basis, as if it gets lost everyone will have to sign again.

The answer is of course to have a separate deed of guarantee for the guarantor to sign.

If a separate document is used however, it should either be signed before the tenancy is signed, or should be ‘signed as a deed’ (which means getting the signature witnessed). There is a legal reason for this – the ‘consideration’ or benefit that the guarantor will get, is the fact of the tenancy being granted to the tenant. If the tenancy has already been signed and agreed, then there is no ‘consideration’ and the guarantee could therefore be unenforceable. Unless it is signed as a deed (I look in more detail at signing tenancy agreements on Day 29).

Note that the guarantor must always see and approve of the tenancy agreement before he signs – this is not a problem if the guarantee is part of the tenancy agreement. If it is a separate document though, you should attach a copy. A guarantor cannot be forced to pay up in respect of a tenancy agreement he has never seen.

Guarantees where there are joint tenants

Where you have guarantees for tenancy agreements with joint tenants, it is not often realised that the guarantor is guaranteeing all losses. So in the case of a student let, a parent may end up paying the landlord in respect of damage done, not just by his son, but by his son’s reckless friend.

It is difficult to prevent this sort of injustice, due to the fact that joint tenants are all collectively ‘the tenant’ so legally it is hard to find a way to make guarantor Jones senior only liable for damage caused by tenant Jones junior. Making the guarantor only liable for a percentage of loss can also be unfair. For example Jones junior could be responsible for all of the damage, or none of it.

In practice most tenancies seem to work fairly well, mainly due to the parties being reasonable about it and sorting things out among themselves.

Duration of guarantees

The guarantor will generally sign up for the fixed term of the tenancy. Landlords of course will want him to be liable for the whole time the tenant is in the property.

You can provide for the liability of the guarantor to extend beyond the end of the fixed term, but the guarantor will have the right to cancel this on notice (he cannot normally cancel during the fixed term). If you provide in the tenancy agreement for the notice period to be two months, then you can serve a section 21 notice on the tenant if your receive notice of termination from the guarantor, and say that he will need to find another guarantor as a condition of being allowed to stay in the property.

Note however that the guarantee will be automatically canceled if you sign a new tenancy agreement with the tenant, or if the terms of the existing tenancy agreement are changed – for example if the rent is increased. In both of these circumstances you will need the guarantor to sign a new guarantee deed.

The reason for this is that the guarantors can only be held responsible for the tenants liability under the terms of the tenancy agreement they have seen and agreed to. If these terms are changed, they have to approve this before they can be held liable under it.

Two final points

Make sure you reference the guarantor as well as the tenant. There is not a lot of point in taking a guarantee from someone who is as impecunious as the tenant!

Be careful also about allowing the tenant to take the guarantee deed away to get it signed. It is not unknown for the tenant to forge the signature himself. I have known at least one case where this happened.

Do you take guarantees for your tenants? Have you had objections for guarantees about being responsible for damage done by co-tenants? Have you known tenants forge guarantors signatures?

Tomorrow I will be looking at agents.