THE GROWING IMPORTANCE OF GUARANTORS IN THE LETTINGS MARKET

One change in the lettings market which is likely to be ushered in by the forthcoming Renters’ Right Bill is the rising importance of guarantors, writes Phil Cooper.  Traditionally these have been used to support tenants with a limited or chequered credit history or with irregular income – but with changes such as the abolition of Section 21, the banning of paying rent in advance, and the end of fixed-term tenancies, the role of guarantors could become much more central.

With the changes in the Bill, landlords may start to seek guarantors for tenants such as the self-employed, employees on variable incomes, students and those who are relatively new to the UK. 

Given the measures in the Bill, landlords will understandably want additional reassurance that the rent will be paid.  Currently most guarantors are family members and friends, but we may start to see the need for employers to step in to enable their staff to find somewhere to live.

That means it is more vital than ever that guarantors understand what they are signing up for.  It’s not a question of doing a friend a favour – it’s a serious and potentially long-term legal liability.

In short, a guarantor is financially responsible not just for the tenant’s rent, but also damage to the property.  With the abolition of fixed term tenancies, this could be an open-ended commitment.  There is no opt-out clause; the guarantor is tied in for the whole period of the contract.

Bear in mind too, that in the case of a shared property, the guarantor could be liable for the rent for the entire property, not just the share of the individual for whom they are providing the guarantee.

From the landlord’s point of view too, a fair and watertight guarantor contract is essential.  If the terms are unfair, then it will not be enforceable; likewise, if the landlord makes a significant change in the tenancy agreement, that could render the guarantor’s liability null and void.  Landlords must also include guarantors in all communication about the tenancy, serving notices, for example, to both tenant and guarantor.

Landlords should also reference guarantors as thoroughly as they do tenants; there is little point in accepting a rent guarantee from an individual who does not have the resources to pay up if the need arises.

We are starting to see an increase in the use of professional guarantors, to whom tenants pay a fee to act as their guarantor.  Although potentially expensive, this may be a way for good tenants, who might otherwise be locked out of renting because they can’t or don’t want to impose on family members, to find somewhere to live.

As with so much in the lettings market, the key is to seek expert advice before agreeing to be a guarantor (and for landlords, before accepting a guarantor), to avoid facing an expensive and potentially open-ended financial commitment.