In an open letter to Housing Secretary Angela Rayner, multiple housing charity organisations including the homelessness charity Shelter are requesting an amendment to the Renters’ Rights Bill that would severely limit landlords’ right to use guarantor agreements.
The charities supporting tenants want the Government to ban what they term “discriminatory” powers traditionally used by some landlords who insist tenant applicants have a guarantor.
A guarantor is usually a person (sometimes a company) who can provide a financial guarantee for a tenant’s renter’s obligations to a residential tenancy, both financial and other terms under the contract. They are responsible for paying the rent in the event the tenant defaults and ensuring that the terms of the rental contract are met.
A guarantor provides the landlord with additional security where a tenant may not meet all the normal pre-tenancy standards: a good credit score and positive references. It is a device that increases the likelihood of tenants in this position being taken on by landlords.
Guarantors must be in a position financially to cover the tenant’s obligations such as making up rent arrears and paying for damage etc. They would therefore need to prove a minimum level of income, and they would preferably be a homeowner themselves.
In theory anyone over the age of 18 is legally entitled to be a guarantor though most are relatives of the tenant, for example parents. Guarantors are usually subject toa credit check and employer referencing to demonstrate sufficient income, a good credit record and positive employer references. Retirees would be required to show sufficient income or liquid funds.
For a guarantor agreement to be enforceable it is important that it is properly drawn up by a legal professional, signed as a deed and properly executed and observed. A guarantor must be aware and fully understand the obligations they are taking on and how long their commitment will last.
The guarantor must therefore have sight of the letting agreement and guarantor agreement prior to the tenancy commencement and before signing and must be kept informed (in writing) of any developments in the tenancy as soon as they occur, for example missed rent payments or damage to the property or contents.
The charities have said that their demands are not to ban guarantors altogether, but to include a requirement in the Renters’ Rights Bill that a guarantee cannot be legally enforced when (1) a tenant’s income is sufficient to cover the rent, and/or (2) when a landlord has taken out rent guarantee insurance. They also call for the liability commitment to be limited to six months.
The charities allege that some landlords are using the requirement for a guarantor as a mechanism to screen out “undesirable” tenants, effectively locking out a large poorer section of the population from the private rented sector (PRS).
Landlords have expressed outrage at the allegations complaining that there is widespread misunderstanding of the private rental sector by those in the homelessness charity organisations and that clamping down on a landlords’ ability to use guarantors will work against tenants.
The selection process that landlords and letting agents use, they argue, involves many factors and not all of them are purely financial, but a safety margin is needed to enable tenants to cover other spending necessities besides paying the rent. A tenant with county court judgments (CCJs) against their name is generally seen as a red flag, but a guarantor may just make all the difference as to whether the tenant is approved or not.
Other factors include job security, length of employment and when a tenant has just returned from abroad with no recent credit history to draw on. Someone with an insecure job, a variable earnings record, or just started a new job is an unknown quantity to a landlord who could well be assured with a guarantor in place. Students, and foreign students in particular, fall into these categories.
The Bill is passing through Parliament so there is nothing certainty at this stage as to the final provisions on guarantors. Several proposals have been made to be included in the Bill about guarantors similar to those above which could be a game changer for guarantors. Under the Bill, pending any further amendments or changes before it is passed, guarantors will not have unlimited liability. A key provision proposed in the Bill limits the financial liability of guarantors to a maximum of six months’ rent.
The forthcoming Bill also proposes to introduce specific provisions concerning guarantors:
The Bill includes an amendment that prevents individual guarantors, often family members, from being held liable for rent payments after the tenant's death. This measure aims to protect bereaved guarantors from financial hardship during a time of grief.
A proposed new clause seeks to limit the circumstances under which landlords can request a guarantor. Specifically, landlords would be prohibited from requiring a guarantor if:
These provisions, if passed, would aim to balance the protection of tenants and their families with the legitimate interests of landlords.
So, if the Bill is passed substantially as set out, the guarantor agreement will have a far less important role to play, though there will be circumstances where a guarantor will be advisable.
From a landlord’s or agent’s safeguarding viewpoint, it will perhaps be more important in the future, given these proposed changes, to rely more on a good rent guarantee policy such as Total Landlord's legal expenses and rent protection insurance.
Even with a guarantor agreement in place it is essential for landlords to take out comprehensive landlord insurance policy, so that they are covered for public liability - accidents and damage should the unexpected happen.
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