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3 Things Guarantors Need to Know

Posted by Kristina Murkett in

It's no secret that there is a lot of legal jargon surrounding the lettings process, and most students don't know their lessors from their leases or their arrears from their agents. One of the more common terms cropping up in student contracts is the idea of the 'guarantor' - someone who provides a guarantee, or promise, to your landlord or property owner that they'll cover rent payment if you do not. Landlords and property managers are ultimately business people, and so have to protect themselves against the financial risk of students defaulting on their payments - an all too common problem now that the cost of renting (and overall cost of living) has vastly outstripped the annual rise in student loan allowance.

Yet not only do guarantors provide an insurance against loss of rent, they also act as co-signers (they sign the lease with you even though they may not live in the rental unit). It is therefore crucial that they are aware of the potential pitfalls of the set-up that they are effectively taking full financial responsibility for, and so are our top 3 things to check before you sign on the dotted line:

1. Are you signing an individual or joint tenancy?

If students are on a joint tenancy then the guarantors will be joint too, meaning that one parent (or guarantor) could end up being chased for the rent arrears (unpaid fees) caused by somebody else's child. In short, joint liability means all tenants (and guarantors) are each liable for the whole rent - which could be a problem if your flatmate maxes out her overdraft or your roomie is often late on payments. This could also be tricky if one or more tenants are staying for several years, but the others are leaving after just one - a common arrangement in student houses, where tenants may graduate at different times, study abroad for a year, or even drop out of university altogether.

2. Are you aware of the tenancy deposit scheme?

If the parent (or guarantor) pays the deposit, they should also be sent the 'prescribed information' outlining the full terms and conditions, as they are a 'relevant person' for the purposes of the Housing Act 2004. If they are not sent this information, then there is a potential penalty claim against the landlord or agent - and if they are, then there are two potential scams to watch out for.

Firstly, be wary of contracts claiming there's no need for a deposit - a situation which can leave tenants and guarantors liable for uncapped costs on leaving the property. All tenancies should stipulate a reasonable deposit, in order to protect tenants and guarantors as well as landlords.

Secondly, check with the agent or landlord which of the mandated tenancy deposit schemes will be used to secure the deposit, and ensure the paperwork confirming the scheme is handed over on completion. It may seem like unnecessary admin, but should any disagreements over the deposit arise once the tenancy ends, the scheme can then adjudicate fairly.

3. Are you signing an assured shorthold tenancy?

A lot of rogue landlords purport to offer licences, not tenancies - an important but subtle distinction. A tenancy has the legal effect of passing an interest in land from the landlord to the tenant, i.e. the tenant is given the right of occupation. In contrast, a license creates no interest in land - a licensor can use the land, but not exclusively occupy it. The landlord may therefore try and exploit the loopholes in a license to get away with schemes such as short notice periods, not protecting a deposit, and so on.

As students are often first-time renters, they are particularly vulnerable to these pitfalls simply through lack of experience. Thus extra support from parents - and guarantors - can offer more leverage for students who fall prey to issues such as unprotected deposits, poor conditions, unfair terms in tenancy agreements or extremely high letting agent fees. Remember to check and double check over everything that you're signing - although you're hardly selling your soul, you are still selling your financial services.

Image courtesy of Flickr, Creative Commons.