How to use a guarantor

There may be occasions when landlords want to rent out their investment property to tenants, but their tenant vetting process hasn't categorically affirmed that the tenants are a good bet. For example, if the prospective tenants are students, they may not have a good credit history, due to frequent changes of address, and they may not pass the affordability test on whether they can meet the rental payments.

Find out if your tenant can afford to pay the rent here.

But landlords can still let out their property by using a guarantor as a back-up.

But what is a guarantor? A guarantor is an individual, maybe a close relative, who will assume paying the rent if the tenant fails to pay.

The guarantor will enter into the tenancy agreement consenting to meet the full legal obligations of the tenancy agreement on the tenant's behalf. This may include damage to the property, rent arrears, or other obligations or liabilities of the tenant to a landlord arising from the tenant's failure to comply with the lease covenants.

The guarantor is contractually bound to accept the tenant's legal liabilities and they will be sued if they don't comply. To satisfy the requirements of a good credit score to become a guarantor, they usually need to be a homeowner who has been in long-term employment.

Landlords commonly use guarantors for student tenants, tenants on a low income, or tenants with a chequered employment history.

If your prospective tenant has found someone who is willing to be a guarantor, you, as the landlord, should then do the same credit checks as you did for the tenant. If the tenant referencing comes out OK, you should attempt to meet the guarantor face to face to explain what is involved.

Then if they are still willing to be a guarantor, you could get them to sign a Deed of Indemnity. But if you get the guarantor to sign the tenancy agreement before the tenant, then a Deed of Indemnity is not required.

It also may be advantageous for you if the guarantor is a homeowner because if the tenant disappears into the night during the tenancy, it should be easier for you to contact the guarantor as, hopefully, they won't be able to abscond.

Also, if the guarantor is a homeowner, they are more likely to have some financial collateral, so if you need to reclaim your money, you will be able to claim against their assets.

To find out whether the guarantor is a homeowner, landlords can do a search on the Land Registry's website, for a cost of £2.

Do remember, though, that most tenants are good tenants who look after the property and pay the rent. But it still is advisable that you, as a landlord, try to minimise the risks involved in renting out your investment property by filtering out the bad ones.

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Published on: June 2, 2008

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