A Guarantor Agreement is often used when the Tenant’s financial situation is weak, or whenever there is doubt regarding the Tenant’s ability to pay the rent or comply with some of the key terms of the Tenancy Agreement.
The Guarantor Agreement is a binding contract between the Landlord and a third party (the ‘guarantor’) whereby the Guarantor (‘surety’) promises the Landlord to be responsible for the due performance by the Tenant of his obligations under the Tenancy Agreement (payment of rent etc.) if the Tenant fails to perform these obligations.
A Guarantor Agreement is generally used whenever the Tenant's ability to pay the rent is in question.
Typical cases will be where the Tenant is:
- A company. In this case, the director or, if the company is a subsidiary of a large and financially sound company, the parent company should be required to sign a Guarantor Agreement. Note that where the tenant is a private company a Guarantor should always be sought.
- A student or unemployed person. Such persons have no current earnings and often little in the way of previous earnings history to rely upon. Often they generally have a poor financial status and this is a classic situation where a Guarantor would be appropriate.
- A divorced or separated spouse. Where the separated person is solely dependent on maintenance payments for income, the 'paying' spouse or ex-spouse should be required to act as a Guarantor.
- A self-employed person. Self-employed persons can represent a higher risk for the landlord for two main reasons. Firstly, their earnings, by definition, often fluctuate from month to month and may be difficult to verify or predict accurately. Secondly, attachment of earnings orders, which can be applied by the courts, to debts owed by persons in employment, cannot be used where a person is not employed.
- Foreign nationals. As with self-employed persons, it may be difficult to obtain satisfactory references on people who arrive from overseas.
- A bankrupt, or other situations where financial references are unsatisfactory (e.g. County court judgements - CCJ registered against them). A guarantee will avert risk where, despite previous financial problems, the landlord or agent considers the prospective tenant to be bona fide, thus allowing the tenant to be accepted.