Guarantors in Rental Agreements: Why Might You Need One & What Are The Risks?

Mariam Abu HusseinLegal Assessment Specialist @ Lawhive

Updated on 24th July 2024

When renting a property, tenants and landlords enter into a tenancy agreement that outlines the terms and conditions of the tenancy. However, in some cases, landlords may want additional security to ensure that rent will be paid on time and the property will be maintained. 

This is where the concept of a guarantor comes in. That is, someone who agrees to cover the tenant’s obligations if they fail to do so. This includes paying rent and covering any damages to the property.

In this article, we’ll explain the role, responsibilities, and legal implications of being a guarantor in a rental agreement.

Specifically, we’ll cover what it means to be a guarantor and what the role entails. By the end of the article, you’ll have a thorough understanding of the concept of guarantors in tenancy agreements, so you can make an informed decision whether you are a tenant, landlord, or considering becoming a guarantor. 

What is a guarantor in a rental agreement?

A guarantor in a rental agreement is someone who agrees to take on the financial responsibilities of a tenant if the tenant fails to meet their obligations. 

For example, if a tenant can’t pay their rent or causes damage to the property, the guarantor has a legal responsibility to cover these costs. 

This agreement is usually formalised in a guarantor form, which is signed by the guarantor, the tenant, and the landlord. 

Why do landlords require a guarantor?

Landlords might request a guarantor when renting out a property to mitigate the risk of a tenant defaulting on payments or refusing to pay for damages. Asking for a guarantor helps landlords feel more secure when renting out their property, ensuring that they have a backup if the tenant can’t meet their financial obligations. 

Common reasons include: 

• A potential tenant has a low credit score due to debts, debtor arrangements, court orders, or bankruptcy; 

• Tenants are on a low income or have just started a new job; 

• Tenants have moved frequently or lived abroad; 

• Tenants can’t provide a reference from a previous landlord.

It is especially common in student rentals for a landlord to request a guarantor as students typically don’t have a credit history, so it makes sense for landlords to ask their parents to act as guarantors. 

What are the benefits of using a guarantor in rental agreements? 

Increased security for landlords 

Landlords are more likely to rent their property to tenants who may not meet all the usual criteria (like having a high credit score) if they have a guarantor. This is because the guarantor promises to cover any financial shortfall or damages caused by the tenant. 

Access for tenants 

For tenants, having a guarantor can make it easier to secure a rental property, especially if they are students, self-employed, or have a limited rental history. 

What are a guarantor's responsibilities? 

A guarantor’s responsibilities include: 

• Paying the rent if the tenant misses payments; 

• Paying for any damage to the property property caused by the tenant beyond normal wear and tear. 

Depending on the terms of the guarantor agreement, they might also be responsible for other costs like late fees or utility bills if the tenant fails to pay them. 

What are the legal requirements for becoming a guarantor? 

To become a guarantor you must be: 

• At least 18 years old, though some landlords require you to be over 21; 

• A resident of the UK; 

• Financially stable with a good credit history and sufficient income.

What is a guarantor agreement? 

There is no standard guarantor form or statutory guarantor agreement. This means that the exact wording of a specific agreement will be strictly enforced by the courts if it ever comes to that. 

As such, it’s important to make sure that you understand the exact wording and implications of the guarantor agreement.

It is highly recommended to seek legal advice from a landlord and tenant lawyer to fully understand your responsibilities and potential liabilities if you’re unsure. 

How do you become a guarantor for a rental agreement? 

To become a guarantor, you will have to fill in a guarantor’s application form and undergo several checks, including a credit check to make sure you meet the financial obligations if needed. As part of these checks, you may also have to provide: 

• Proof of income (payslips, tax returns, bank statements)

• Proof of identity (passport, driving license) 

• Proof of address (utility bills, council tax bills); 

• Legal history, including any County Court Judgments; 

• Proof of employment status and history. 

You may also be asked to provide references or, for business guarantors, bank and trade references may be necessary. 

Provided you pass the credit check, you will be asked to sign the guarantor agreement. This should include: 

• The date of the agreement 

• The duration of the guarantor’s obligation and the conditions under which it ends; 

• The address and specifics of the property being let; 

• The names of the tenants for whom the guarantor is providing assurance. 

It’s important to read this carefully and make sure you understand what you are liable for and the duration of your liability. 

What rights and protections do guarantors have?

Right to clear information

Guarantors have the right to receive all relevant information about the tenancy agreement, including the tenant’s obligations and any potential risks. This includes the terms of the tenancy and the guarantor agreement, which should be in writing and clearly outline the guarantor’s responsibilities and the conditions under which they would be liable. 

Protection from unfair terms

Under the Consumer Rights Act 2015, guarantors are protected from unfair terms in the guarantor agreement. This means that any term deemed unfair by a court is not legally binding. 

Right to fair notice

Guarantors should also be notified promptly if the tenant fails to meet their obligations, allowing them to address the issue before it escalates. 

Limited liability 

The guarantor’s liability is typically limited to the duration specified in the agreement. For example, it might end when the fixed-term tenancy expires unless the tenancy is renewed and the guarantor agrees to continue. 

Legal protections 

Guarantors who enter into agreements as individuals, rather than businesses, are protected under the Consumer Credit Act 1974. This includes the right to a cooling-off period and protection against unfair practices. 

Further, if a guarantor believes they were misled or coerced into signing the agreement, they have the right to challenge its validity in court. 

Rights to information 

Guarantors have the right to access records related to the tenancy, such as payment histories and notices of default. 

What are the potential risks of being a guarantor?

There is no doubt about it, being a guarantor is high risk. 

The biggest risk is that you have to cover missed rent payments or pay for any damages caused by the tenant. This can be a significant financial burden, especially if rent arrears accumulate over several months. 

Furthermore, if the tenant defaults and you can’t fulfill your obligations, the landlord can take legal action against you to recover the debt and your credit score may be impacted, especially if the landlord gets a court judgment against you. 

In many cases, it’s parents and relatives who act as guarantors because they know the tenant well and therefore trust them. And, in the main, when everything goes to plan, the role of the guarantor is simply a formality. 

However, all too often many guarantors may not fully understand the extent of their liability until it’s too late and they are in a position where they have to pay off someone else’s debts. 

What are the possible alternatives to guarantors?

If securing a guarantor for a rental agreement is challenging or not an option, there are alternatives that tenants and landlords may consider. These include: 

• Paying a lump sum payment of rent upfront, like six months to a year’s rent; 

• Offering a higher security deposit; 

• Offering to pay for rent guarantee insurance that covers the landlord if you fail to pay rent; 

• Setting up a direct debit for rent payments;

• Providing a detailed tenant reference check that includes employment verification, credit checks, and previous landlord references; 

• Co-signing the lease agreement if renting with a roommate; 

• Proposing a short-term rental period as a trial to prove trust. 

Can a guarantor end their liability? 

The guarantor agreement should say how and when the guarantor can end their liability. Some agreements allow termination with a certain notice period, while others may require the agreement of all parties. 

The guarantor can also negotiate with the landlord and tenant to be released from their obligations. This often requires the tenant to find a replacement guarantor or provide additional security. 

Is it possible to have multiple guarantors? 

It is possible to have multiple guarantors for a rental agreement. 

In most cases, multiple guarantors will be jointly and severally liable. This means that each guarantor is individually responsible for the entire debt, as well as collectively with the other guarantors. This means that if the tenant defaults, the landlord can pursue one or all guarantors for the full amount. 

Alternatively, each guarantor could sign a separate agreement specifying their obligations. This might limit each guarantor’s liability to a specific portion of the rent or other costs. 

Can a guarantor be someone from abroad?

Many landlords and letting agents are hesitant to accept guarantors because it’s difficult to verify their financial stability, plus it can be hard to enforce guarantor agreements internationally. 

So, while a guarantor can be someone from abroad, the practical and legal challenges make it a less favourable option for many landlords.

Advice for parents acting as guarantors for children

It is very common for parents to act as guarantors for their children, particularly if they’re students. However, it’s important to note that in joint residential tenancies, such as student accommodation, joint and several liability means that the guarantor could be responsible for the rent and obligations of all tenants, not just their children.  

To limit liability, parents can request that the guarantor agreement only cover their child or relatives' responsibilities.

Are guarantors commonly used in commercial tenancies? 

Often in commercial tenancies, directors of the company are asked to act as sureties, which means they are personally responsible for meeting the lease obligations if the business can’t.

This is especially true for new businesses that have few assets and no established goodwill because: 

1. New businesses often lack substantial assets or a track record of financial stability; 

2. Directors are typically more financially stable and have a personal interest in the success of the business. 

Essentially, having directors act as guarantors provides an additional layer of security, ensuring that there is a reliable backup to cover rent and other liabilities if the company defaults. 

It’s important to note that in commercial tenancies, the responsibilities of a guarantor can be extensive. In some cases, it might even require the guarantor to take over the tenancy to cancel it. Further, guarantor obligations in commercial leases can extend for years, meaning the guarantor could be liable for rent and other obligations for the entire duration of the commercial lease.

One alternative to having a guarantor is to make the willing person a joint tenant on the lease.

Are guarantor agreements enforceable? 

A guarantor agreement is enforceable if: 

• It’s in writing and signed by the guarantor to demonstrate their consent and understanding of the terms; 

• It specifies the exact responsibilities of the guarantor, including the conditions under which they will be liable; 

• It clearly states the duration of the guarantor’s liability and whether it extends to renewed tenancies. 

If a tenant defaults and the guarantor does not fulfill their obligations, the landlord can obtain a court order for the guarantor to pay the owed amounts.

What is a primary obligator clause? 

The primary obligator clause in a guarantor agreement is a term that makes the guarantor directly responsible for the tenant’s obligations under a lease. 

If you are named as a primary obligator, you are not just a backup to the tenant. Instead, you are directly responsible for fulfilling the tenant’s obligations if they default on rent or any other commitments. 

Your obligation continues for the entire term specified in the lease. If the lease becomes periodic or is renewed, your responsibility might also extend into these new terms, depending on how the agreement is worded. 

How do indemnity clauses work in guarantor agreements? 

The primary purpose of an indemnity clause is to protect the landlord from financial losses if the tenant defaults on the lease. This clause requires the guarantor to compensate the landlord for specific losses, including unpaid rent, damages, and legal costs. 

If the clause states that the guarantor indemnifies the landlord, the landlord may be required to take reasonable steps to minimise their losses, like evicting the tenant or attempting to re-let the property as soon as possible if the tenant vacates early. 

That being said, some agreements may have no mitigation requirement. In these cases, the landlord could seek full compensation from the guarantor without needing to take steps to mitigate the loss. 

Questions to ask before becoming a guarantor

1. Is the guarantor’s obligation limited to the initial lease term? 

2. Does the obligation extend into any renewal periods or periodic tenancy? 

3. What specific obligations is the guarantor covering? 

4. Is the guarantor a primary obligator, responsible for ongoing payments until the tenant leaves? 

5. Under what conditions can the guarantor’s obligation be terminated? 

6. What notice must be given to end the guarantor’s liability?

Get help from a specialist landlord and tenant lawyer

In summary, becoming a guarantor in a rental agreement involves significant responsibilities and potential risks.

If you are considering becoming a guarantor, or if you are a tenant or landlord needing advice on guarantor agreements, it is wise to seek professional legal advice.

At Lawhive, our experienced network of landlord and tenant lawyers can provide you with the guidance and support you need. Contact us today for a free case evaluation and quote for the services of a specialist lawyer.