A guide to guarantors for residential tenancies
Jack Vlasto, of NRLA insurance partner Rentguard, explains more about what responsibilities guarantors have, who can be a guarantor, and Legal Expenses and Rent Guarantee Insurance.
A guarantor can provide a financial guarantee for a renter’s obligations to a residential tenancy. They are responsible for ensuring that the rent is paid in full and on time if the tenant hits financial difficulties and is unable to pay.
Having a guarantor provides landlords with an added layer of security and can increase the likelihood of renting to tenants who may not meet the landlord's criteria or lack a strong rental history.
A guarantor's responsibility includes covering any missed payments, late fees, or rent arrears that may accrue during the tenancy. Depending on the terms of the tenancy agreement, guarantors may also be liable for covering the costs of repairs in the event that the tenant causes damage to the property beyond normal wear and tear.
Our partner Rentguard has compiled a summary of the criteria a guarantor has to meet to show they are able to fulfil their obligations, the obligations of a guarantor, how they can help ensure rental income continues, and why they can be key to protecting a landlord’s investment.
Who would make a suitable guarantor?
In England, legally anyone over the age of 18 (although agreement clauses can specify 21) can be a guarantor.
A suitable guarantor will need to:
- Be a UK resident, so that legal action can be pursued if necessary
- Ideally be a homeowner
- Demonstrate a good credit history
- Have sufficient income or assets to cover the debt
- Be full time or part time employed or retired with sufficient funds/income
- Have their residency at their address verified
- Have no previous court orders
A suitable guarantor should have a stable income and employment and the means to cover any potential rental arrears or damages. Ideally, the guarantor would have a close relationship with the tenant, such as a family member or a close friend. Alternatively, a company acting as a guarantor for tenants could be used.
It is important for a guarantor to fully understand their role and for them to be prepared to fulfil their financial obligations should the tenant default.
Guarantors and referencing
Tenant referencing is a landlord or letting agent’s way of checking the reliability of prospective tenants and ensuring their income covers rent payments.
As part of the referencing, a tenant needs to prove they can afford to pay the rent. If a tenant does not meet this minimum standard, they may be asked to put up a guarantor.
The criteria for passing an affordability check can vary from company to company. Some may require a tenants’ gross combined annual household income to be more than 30 times the monthly rental amount. For example, to rent a property at £1,000 a month, your household income must be at least £30,000 per year.
Tenants may not pass the affordability check during the referencing for many reasons. Some groups of people may find it harder to clear the criteria needed to pass a tenant reference but may still make reliable tenants. These include self-employed tenants, people in receipt of benefits, students, first time tenants and retired tenants.
Referencing checks for all tenants named on the tenancy agreement are a requirement of rent guarantee insurance policies such as ours. Many policies require landlords to carry out references before the tenants move into the property. Guarantors will also have to pass referencing checks for your policy to be eligible.
What is a guarantor's responsibility?
Guarantors are legally bound to fulfil the financial obligations of the tenant if they default on their rent payments or cause damage to the property. This includes paying rent arrears, covering repair costs, or any other liabilities outlined in the tenancy agreement.
They may be responsible for paying any additional charges outlined in the tenancy agreement. This can include utility bills, council tax, or any other financial obligations specified in the agreement.
The guarantor is bound by the same terms and conditions of the tenancy agreement as the tenant. This includes maintaining the property, adhering to any rules or restrictions, and ensuring the tenant's compliance with the agreement.
If the property is a shared let with other tenants under one tenancy agreement - a joint tenancy - it's common for the guarantee to apply to all of the rent, not just an individual's share.
If the tenant breaches the tenancy agreement and legal action is taken by the landlord, the guarantor may be held financially responsible for any legal costs incurred by the landlord as a result.
The length of the agreement a guarantor enters into can vary. Most guarantor agreements ends once the tenancy has ended. If there are rent arrears when the agreement ends, the landlord can refuse to end the contract.
Can I still rent to tenants without requesting a guarantor?
Yes, it is possible to rent to tenants without requesting a guarantor.
While a guarantor provides an additional layer of security for landlords, it is not always a requirement for every tenancy. But it may be a requirement of your rent guarantee insurance. If the tenant fails to meet the requirements, usually because the ratio of income against the rental requirement is insufficient, then a guarantor would be needed to ensure you are covered.
Legal Expenses and Rent Guarantee Insurance is designed to help protect you against the risk of a tenant not paying their rent. As well as off-setting some of the costs should your tenants default on rent, it can cover legal costs incurred by you if you need to repossess the property and provide mediation and legal support throughout the process. But if you do take out rent guarantee insurance, it is important to ensure you are fulfilling your obligations so that policy is valid in the event you make a claim.
Landlords should check the terms and conditions in the rent guarantee insurance policy wording to make sure they meet all policy requirements to help avoid a claim from being rejected.
Help is at hand – get in touch with Rentguard
With vast experience handling insurance policies for a wide range of landlords, and with relationships with a number of leading insurers, Rentguard Insurance aims to simplify your insurance arrangements and help to protect your property, its contents, and your liabilities.
Or speak to our specialist team on 0333 000 0169.
The sole purpose of this article is to provide information on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice.
Arthur J. Gallagher Insurance Brokers Limited trading as Rentguard and National Residential Landlords Association, an Introducer Appointed Representative of Arthur J. Gallagher Insurance Brokers Limited, accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
National Residential Landlords Association is an Introducer Appointed Representative of Arthur J. Gallagher Insurance Brokers Limited, which is authorised and regulated by the Financial Conduct Authority. Registered Office: Spectrum Building, 55 Blythswood Street, Glasgow, G2 7AT. Registered in Scotland. Company Number: SC108909. Rentguard is a trading name of Arthur J. Gallagher Insurance Brokers Limited.
