Guarantor agreements for landlords: When they help, when they fail, and what to include

Guarantors are another way landlords can protect themselves and increase their financial security. In many cases, they work perfectly fine. But they aren’t always the best or most suitable option.

Mandating a guarantor can drastically impact tenancies, and not getting the agreement, signing process, or referencing right can be even more problematic for landlords.

In this article, we’ll explain when guarantor agreements are helpful, when they don’t work, and what to include in a “good” agreement.

What is a guarantor and when should landlords ask for one?

A guarantor is a named person who is legally obliged to pay the rent if the tenant cannot. They must generally be of working age, live in the UK, earn a stable income, own their own home, and have a good credit history.

The guarantor can be legally obliged to pay for:

• Unpaid rent
• Property repairs beyond the tenancy deposit
• Legal fees or late/interest fees related to either of the above
• Other fees stipulated in the agreement

Generally, landlords ask for a guarantor in certain circumstances, such as:

• Student tenants: It’s common to request a guarantor for a student (e.g., a parent) as student tenants usually don’t have a full-time income stream or an established credit history.
• Low-income tenants: Tenants with a low income can present a higher risk to landlords, as they can be more likely to miss a rent payment or be unable to repay the costs of damages.
• Tenants with a poor credit history: Some landlords accept tenants with a poor credit history under special circumstances, like supplying a month’s rent upfront (no more than this is allowed to be enforced under the Renter’s Rights Act) and a guarantor.
• Tenants on benefits: Tenants receiving Universal Credit or another benefit may be asked for a guarantor to mitigate risks associated with having a lower income.
• Other reasons: Landlords can request a guarantor for any other reason, such as a general affordability concern or being allowed to have a pet in the property.

The commercial reality: When is a guarantor beneficial?

A guarantor is only useful if the agreement is clear, enforceable, and signed correctly. Landlords can be burned financially if the guarantor arrangement or the agreement doesn’t cover all bases.

To avoid challenge (and guarantor agreements not being legally enforceable for the required payments), the tenancy agreement and related documents should clearly state:

• All parties’ full names (with ID checks performed)
• Rent amounts (which should be updated when changes occur)
• Expected rent payment dates: This is important for determining outstanding payments and late fees.
• Deposit amount: Noting the specific tenancy deposit rules regarding communication to the tenant, e.g., if the guarantor pays the deposit, they must be provided the prescribed information within 30 days.
• Guarantor obligations: This should be a detailed list including everything you expect the guarantor to pay if the tenant fails to, and by what timeframes (noting what’s legally “fair” to ask for and what’s not).
• Rent review terms: Include the terms by which the rent is reviewed and/or increased.
• Tenancy address and dates of agreement: There should be no confusion as to which property the agreement applies to, or which dates it falls between.

What to include in the guarantor agreement

Key elements to include in the guarantor agreement include:

• What exactly is guaranteed: This is usually rent only, rent plus damage, or rent plus other tenancy breaches. Be specific about anything that relates only to this tenancy. For example, pet damages.
• How long it lasts: Specify whether the guarantee continues into renewals, periodic tenancies, or variations – and ensure this is legally enforceable. If not mentioned or not legally enforceable, agreements can be instantly voided.
• Signatures and witness process: For a guarantor agreement to be legally enforceable, you need a witness during the signing process. This should be an impartial adult who signs their name, address, and signature as having seen the guarantor sign.

Bear in mind that the more you ask for from a guarantor, the harder it may be for some tenants to get the guarantor’s approval. A good rule is to ask for what’s necessary when it’s necessary.

Blanket policies that cover everything are good for delivering more financial security, but they can be off-putting for some tenants and their guarantors. Assess the level of risk and match your agreement accordingly.

For example, parents of students may be happy to cover rent arrears, but may not be willing to sign up to an agreement that lasts longer than the students’ studies and includes potentially thousands in damages.

What are common failure points in guarantor agreements?

Not every guarantor agreement is legally enforceable – nor will it offer landlords the financial protection they need.

Common failures in guarantor agreements include:

1. Vague wording

Specificity is key in any legally enforceable document. Make it clear who, when, and what applies in the situation when a rent payment is missed.

For example, vague wording may be:

The guarantor agrees to pay any money the tenant owes the landlord.

But a clear, actionable, and legally enforceable agreement may say:

The guarantor must pay the landlord any outstanding rent arrears within 14 days of receiving a written demand, provided the landlord has first issued a formal 7-day payment reminder to the tenant.

2. Unsigned or badly executed documents

Make sure the agreement is signed and have a clear process for how the signing process must work.

For example:

• The guarantor receives the agreement and signs and dates it
• The witness receives the agreement and signs and dates that they’ve witnessed the signing
• The landlord receives the agreement and a clear audit trail of the signing and the dates

Agreements can fail if the witness wasn’t clear on their role, or if they sign before the guarantor does.

3. Material tenancy changes without updating the guarantee

When making “major” changes to the core terms of the tenancy agreement, landlords must obtain written consent from the guarantor. Otherwise, the agreement is automatically voided.

Some examples of changes that may require the guarantor to review and re-sign include:

• Rent increases (unless a specific increase is clearly mentioned in the agreement after a specific timeframe, e.g., year one rent and year two rent)
• Changes to some of the occupants (e.g., a change in spouse or a tenant swap with a different friend)
• Extending the length of the tenancy (without stipulating what happens to the guarantor in the original agreement)
• Changes to the property rental agreement (e.g., if the landlord removes access to the parking space or adds a new occupant’s room)
• Ownership changes of the property (e.g., if the landlord sells the property with tenants in situ or transfers ownership to a new owner)

4. Trying to rely on unfair or overreaching terms

Landlords have a duty to ensure their terms are deemed fair. Including “unfair” terms in a guarantor agreement can lead a court to rule that it’s void or unenforceable.

Some clauses that can breach the Consumer Rights Act 2015 include:

• The “forever” clause: Giving the guarantor no end date to the agreement or exit strategy won’t stand up in court.
• Changes without consent: Landlords can’t specify that the guarantor agrees to any changes without the need for consent.
• “All tenant” full liability: In shared houses, a single guarantor cannot be made liable to pay in full for all tenants, as this should be kept to a percentage of the child/tenant they are responsible for.
• Excessive late payment fees: 3% above the Bank of England base rate is permissible (under the Tenant Fees Act, which exists alongside the Renters Rights Act), but penalties any higher than this are legally unenforceable.

Due diligence landlords should do on the guarantor

To assess the suitability and legitimacy of the guarantor presented by the tenant, landlords should:

• Check identity: Ask for a valid photo ID (like a passport or driving license) and cross-check this after meeting the guarantor face-to-face or via video call.
• Confirm address: Ask for a proof of address (not a mobile phone bill) dated in the last 3 months. Check this against a credit referencing tool and the driving license.
• Assess affordability: Guarantors should earn over a certain amount to be financially suitable (e.g., 3 times the annual rent). Ask for the last 3 months of payslips, an employment contract, and 3 months of bank statements to support affordability assessments.

When is a guarantor not enough to protect yourself?

Guarantors offer coverage, but they’ll never cover you for all the financial risks of being a landlord. There are some instances where a guarantor isn’t enough to protect yourself. For example:

• Collection barriers: Even after guarantor referencing, the guarantor may still not pay, leaving the landlord to pursue the case in court.
• Eviction delays: Court proceedings must be funded by the landlord (or their insurance company), so even if the guarantor continues to pay the rent arrears for the tenant, landlords must pay out in the meantime.
• Rolling tenancies: The Renters’ Rights Act removed fixed-term tenancies and moved to rolling tenancies, which present difficulties for guarantor agreements. Specific wording and routine re-signing are required to prevent landlords from being challenged in court.

Consider further protection you can create for yourself, such as getting landlord insurance, continuously improving referencing checks, and utilising property management software to create standard policy documents and rent payment reminders.

FAQs

Do landlords need a reason to request a guarantor?

No, landlords don’t need a qualifiable reason to request a guarantor. For example, there isn’t a set of eligible circumstances when a landlord can request it. They can request a guarantor for any reason.

However, having a blanket policy of requiring a guarantor for all tenants isn’t always a good strategy. Some tenants can be put off by the requirement or may not have a guarantor, especially if they have a good track record.

Who cannot be a guarantor?

Not everyone should be a guarantor for a tenant. Guarantors should offer financial protection for landlords, so you shouldn’t accept someone who:

• Is under 18 or 21 (depending on the agreement)
• Is a financial dependent of the tenant (e.g., a spouse)
• Is a non-resident
• Has poor credit history
• Has low income
• Has no assessed mental capacity

Include in your policy/communication with the tenant who you’re willing to accept as a guarantor and what the specific requirements are.

What can be used instead of a guarantor?

Asking for a guarantor is a good way to protect yourself if a tenant doesn’t pass all your financial checks. But in slower markets, these tenants may not be readily available.

There are options in these situations:

• Hire a professional guarantor: If a tenant doesn’t have a guarantor in their circle, they can hire the use of a professional guarantor. They pay a fee to the agency, who agrees to cover defaults on payments.
• Get rent guarantee insurance: Landlords can get insurance, which pays the rent and other fees (depending on the policy) in certain circumstances and after stipulated timeframes.

Things to remember: Guarantor agreements for landlords

• Have clear policies, procedures, and letter templates: Create concise policies of who you’re willing to accept and how you’ll go about verifying their suitability/affordability.
• Automate the process where you can: Poor signing of guarantor agreements can be deemed void in court. Consider how property management software and automation can support the signing and enforcement of a guarantor agreement (through auto alerts and template documents).
• Be mindful of “unfair” clauses and common failures: Check government guidance carefully and seek advice if needed to ensure your agreement will stand up in court.
• Don’t just rely on a guarantor for protection: Consider landlord insurance, issuing automatic payment reminders, and other means of protection to minimise financial risks.