What is a tenant guarantor, and who can be one?

A tenant guarantor is someone who agrees to pay the rent (and potentially other tenancy costs) if the tenant doesn’t pay. Tenant guarantors can be a real asset in risk management and making sure that tenancies run smoothly – particularly when renting to tenants who may seem higher risk on paper, such as students, first-time renters or tenants with past credit issues.

Arguably, it’s always a risk when renting to a new tenant. Are they going to be reliable? Are they good communicators who can manage their finances well? Of course, you can do some thorough screening checks to ensure that you’re protecting your investment, but there will always be an element of risk and the unknown. That’s where a tenancy agreement with a guarantor can help put your mind at ease.

This article will help you decide when using a tenant guarantor is a good idea, what a good tenant guarantor looks like and how to set up the arrangement properly.

What is a tenant guarantor?

Essentially, a tenant guarantor is a third party who agrees to cover tenant obligations if the tenant defaults on their rent payments. This helps to protect the landlord. They can also cover other tenancy obligations, such as property damage beyond fair wear and tear, missing items or reasonable enforcement costs (such as the costs of chasing arrears), for example.

In practice, this is documented through a tenancy agreement with a guarantor (usually via a separate guarantee/deed linked to the tenancy).

A landlord might choose to request a tenant guarantor if a tenant has failed an affordability check, has a limited or poor credit history, or is a student.

Tenant guarantors are also beneficial for the tenant, helping to provide security and peace of mind knowing that they have a safety net if they run into difficulty. That said, it must be someone that they know and trust.

Who can be a tenant guarantor?

Typically, tenant guarantors are parents or guardians, a close family member or sometimes a high-income friend. Beyond this, every tenant guarantor must meet a minimum criteria checklist:

• UK-based
• Aged 18+
• Passes ID checks
• Strong credit profile
• Stable and sufficient income
• Able to provide evidence, using payslips, bank statements or tax returns if self-employed.

With the above in mind, guarantors may fail referencing if they have insufficient income, poor credit, or are unwilling to provide documents or sign correctly. What constitutes ‘insufficient income’ will depend on how much rent would need to be covered if there were a claim. Generally, landlords should only accept guarantors who earn three times the annual rental.

If a tenant cannot find anyone to act as their guarantor, they can usually opt to use a rent guarantor provider company. These companies act in the same manner as a UK resident guarantor, and are ideal for international students or anyone who cannot provide a suitable guarantor.

Can a pensioner be a tenant guarantor?

Yes, technically, pensioners or retired people can be tenant guarantors, but they do still need to show they have a regular income or sufficient liquid assets. They may not always need to ‘earn’ or ‘have’ three times the annual rental – they may just need to have sufficient funds to cover the rental payments.

Pensioner and retired income can include part-time earnings, state and private pensions, savings and other liquid assets.

When to use a tenant guarantor

It’s up to a landlord when they want to use a tenant guarantor, but there are certainly situations where it’s more common. In short, it makes sense to request the use of a guarantor for extra assurance.

You might be seeking that extra assurance when:

• Affordability is borderline, but everything else is a good fit.
• You’re renting to a student who has limited income and credit history.
• You’re renting to a first-time renter who has little to no rental history to reference.
• The tenant has a new job or is in their probation period, taking away an element of financial security.
• The tenant is self-employed with a variable income that’s harder to prove consistently.
• The tenant is new to the UK with no UK credit file or landlord references.
• Minor credit issues are flagged on the credit check.
• You’re renting out a higher-rent property, so naturally, extra security can be sensible.

Aside from these reasons, some landlords also now simply prefer to request a tenant guarantor when the rental market is hot and demand is high. It means landlords can be more selective and choose applicants who best meet their requirements, and one of these requirements may be a tenant guarantor.

Alternatives to a tenant guarantor

If you’d prefer not to use a tenant guarantor, but you’re still looking for that extra element of security, there are a few other alternatives that you can explore. For example, you could ask for several months’ rent upfront instead. This can reduce rent arrears risk and may help where the tenant’s income is variable, or they are new to the UK. You must, however, make sure this is clearly agreed in writing with details of how much is paid, which months it covers and what happens when that time period is over.

You could also explore commercial guarantor providers. These companies may act as the guarantor (for a fee) for a tenant who can’t provide one personally. Check out Housing Hand or the NRLA’s RentGuarantor service.

Setting up a tenancy agreement with a guarantor

So, you have decided that you want to use a tenancy agreement with a guarantor, but how does this actually work in practice?

Firstly, use a separate guarantor agreement that clearly references the tenancy agreement and parties. The guarantor should sign this before the tenancy starts, and the guarantor should be given a copy of this with any key terms that they are guaranteeing. Make sure that you keep an audit trail, especially if signing electronically.

Lastly, make sure the agreement clearly sets out what they are guaranteeing and for how long. Does it only cover the fixed term, or will it continue if the tenancy becomes periodic? What happens if the tenancy is renewed or the rent changes? All these changes can affect whether the guarantee still applies. Consider whether you want the guarantee to be unlimited or capped, as a cap can make the commitment clearer and easier to agree on while still providing reassurance. 

What happens if you actually need to use the tenant guarantor?

Let’s say, for example, that your tenant has not paid their rent. It’s time to bring in the tenant guarantor. Take action early and contact both your tenant and the guarantor promptly, keeping written records of communication and arrears schedules. With any luck, it’s an oversight or a temporary issue rather than anything more serious.

If the issue continues or communication breaks down, you may need to escalate this formally with a letter before you take action. This letter should set out the amount owed, how it has arisen and what you expect to happen next, such as a payment in full or a repayment plan. 

If this doesn’t work, you may need to pursue a money claim via the courts. At this stage, it’s really important that all your paperwork is in order and that your records clearly show what’s owed and why.

A tenant guarantor can be a smart way to protect your rental income and widen your pool of suitable applicants, especially where a tenant looks good overall but falls short on affordability, credit history, or UK rental track record. The key is getting the paperwork right: make sure the guarantee is in writing and signed, the guarantor has sight of the tenancy terms, and the document clearly states what’s covered and how long liability lasts. 

For even greater peace of mind, it’s also worth reviewing your wider protection, such as landlord insurance,  to help provide cover if things don’t go to plan, even with a guarantor in place. If you need landlord insurance or need to check your current policy offers enough cover at the best price, get in touch with our specialists. We’re ready to help make sure you’re fully protected. Request a callback, give us a call on 01788 818 670 or get a quote online.