Guarantors – Unfair Terms in Consumer Contracts Regulations 1991

by Readers Question

9:51 AM, 5th May 2015
About 6 years ago

Guarantors – Unfair Terms in Consumer Contracts Regulations 1991

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Guarantors – Unfair Terms in Consumer Contracts Regulations 1991

I let out one of my properties and the estate agent that dealt with the letting obtained a guarantee. The guarantor is a 20 year old who was a friend of the tenant earning one quarter of the tenant’s salary. The guarantee was drafted by the letting agent so that it continued to apply to any increased rental and/or to any continuation, extension or renewal of the tenancy.

The tenant trashed what was a newly refurbished house, but the AST had expired in the September and we obtained possession by the following January. We couldn’t renew the tenancy because he was in arrears. We have taken action in the small claims court against the guarantor and this is being defended on the basis that the guarantee has fallen foul of the Unfair Terms in Consumer Contracts Regulations 1999.

I was wondering whether it is worth pursuing the claim in light of the terms or whether anyone thinks we would have a reasonable chance of success. The guarantee was witnessed and as I say it was produced by the estate agent not us.

Nicolaunfair


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Comments

10:40 AM, 6th May 2015
About 6 years ago

Reply to the comment left by "wayne carson" at "06/05/2015 - 09:20":

Wayne

I don't think the magic phrase is there but will double check tonight. It was signed in the presence of an independent witness and she was over the age of 18.

Based on case law, in my opnion a guarantee that holds a guarantor on the hook for an indefinite period of time would be unreasonable. Given that the court fee was £205 and I have prepared all the paperwork myself it's not too much to pay out to take a punt on the English legal system. I am sure it will be a case of the "rich landlord" -v- "poor guarantor" but you never know. As I said before this young girl will learn a very valuable lesson from this which is to understand what you are signing up to when you sign!

John Frith

23:04 PM, 7th May 2015
About 6 years ago

I'm not sure why you consider guaranteeing rent for the length of the tenancy as being unreasonable?

Isn't having no guarantor after only X months also unreasonable for the landlord?

7:28 AM, 8th May 2015
About 6 years ago

I don't consider the guaranteeing the rent for the length of the fixed AST as being unreasonable but our guarantee is worded so that it includes any holding over, any renewed AST and the guarantee will also be for any increased rent, all this without the guarantor signing another guarantee. The tenant could holdover for years, we could decide to heavily increase the rent all of which the guarantor may know nothing about until the time comes for the guarantee to be called in. Apart from a fixed term AST nothing else is certain and so on the face of it the guarantor doesn't know what it is signing up to and the I believe the court may construe that as being unfair. In our case there was a six month tenancy that expired last September the tenant was holding over because at that time it became aparent that he was undesirable and was in arrears so we did not renew the AST and so the guarantor is trying to wriggle out by saying she should only be bound for the term of the AST and not the holding over and I think the court will probably agree with that.

Dr Rosalind Beck

8:18 AM, 8th May 2015
About 6 years ago

Hi Nicola.
The way I look at it is: if you get the guarantor to pay up (and it looks like it will probably be their parents paying anyway, if I read things right (only just skimmed the last couple of comments), they will have a far better chance of then trying to get it out of the tenant. That's how I look at it in the case I mentioned - the guarantor was a life-long friend of the tenant's mother (they're all Portuguese) - so he could threaten to tell mutual friends, shame them in their own community and so on - he would have some leverage, which we didn't have.
As landlords we get caught out all the time on tiny loopholes which mean we don't get the money we are morally entitled to. Whilst you may naturally have empathy (that's us women), I would try and see this is a purely professional matter.
Also, regarding the guarantee running over into subsequent ASTs, we came a cropper years ago with a tenant on benefits. The council apparently wanted a new AST in order to give her her benefits, we obliged and gave her the new one, free of charge as usual, later she defaulted, owed us thousands and because we hadn't got the guarantee form re-signed, the original one was invalid and we lost the lot. She and her aunt were then laughing - no empathy from them for us!

John Frith

8:54 AM, 8th May 2015
About 6 years ago

It's an interesting point that Superstrike has taught us that when an AST becomes periodic, a new agreement is formed, so perhaps this does mean that guarantors will, by default, be only bound for the original term?

"A term can't be unfair if you individually negotiated it with the trader"
https://www.citizensadvice.org.uk/consumer/protection-for-the-consumer/consumer-contracts/unfair-terms-in-consumer-contracts/

So does that mean that if it is "individually negotiated" with the guarantor that their responsibility is carried forward to any subsequent periodic tenancy, then it is enforceable?

Ian Narbeth

10:11 AM, 8th May 2015
About 6 years ago

@Nicola "... but our guarantee is worded so that it includes any holding over, any renewed AST and the guarantee will also be for any increased rent, all this without the guarantor signing another guarantee. " This will almost certainly be struck down.

Even in the context of a commercial lease this wording is exceptional and won't be enforced. It is one thing for the guarantee to endure when the EXISTING tenancy holds over. It is quite a different matter to try to bind the guarantor to a NEW tenancy. In my opinion that is unquestionably an unreasonable term as per the regulations and I very much doubt it was "individually negotiated". It might fail even if it had been negotiated if the old contract has come to an end when the new tenancy was signed.

The problem Nicola you may have is that the courts may strike down the ENTIRE guarantee and not separate out the unreasonable parts of it and find that the reasonable parts are enforceable. Your agents (or whoever prepared the guarantee for them) may have ruined the guarantee by making it too onerous!

John Frith raises a good point about the effect of Superstrike. Yet more complexity I am afraid but it is not automatic that a new tenancy is created when the contractual term ends and the tenant holds over. It is possible to provide for the tenancy to become a contractual (as opposed to a statutory) periodic tenancy in which case it remains the same tenancy and so you may be able to keep the guarantee alive. Far too subtle I suspect for most people.

10:35 AM, 8th May 2015
About 6 years ago

I suspect we are on a hiding to nothing. The only comfort I have is that it has upset the guarantor and her parents and also taught her a very valuable lesson - I am sure she won't sign up to anything again without realising what she is signing up to!

I am applying to have the case heard in the small claims court as for £205 it's worth having a go, I've completed all the paperwork myself and will not have any other legal expenses apart from the court fee.

wayne carson

10:42 AM, 8th May 2015
About 6 years ago

Whilst Superstrike highlighted some school of thought on the Benches it has been superseded by new legislation that brought common sense back to the table. Pointless bringing this as an example to the table and somewhat distracting from the point in question although i can see why it has been brought up.
I feel Ian raises some excellent points in his latest response and just about covers the issue and should bring this article to a close. He is spot on in pointing put that the guarantors obligations ceased once a new tenancy was signed and the courts would not expect a guarantor to be bound by terms of a new contract that they knew nothing about.
A word of advice, i have read of people here spouting on about chasing the debt against the tenant/guarantor. Have you given thought to if you lose? Are you aware that costs may be awarded against you? The latest fees i am hearing from lawyers representing organisation such as Shelter are costs in the region of £6000 to the respondent, mostly when a landlord attempts to cut costs/corners and do it themselves. My advice if you do not have sufficient background in law do not represent yourself it can backfire disastrously!
Some people may be confident about taking people to court, good for them, they could have been lucky. Most cases go undefended/represented in which case you would most likely get a favorable result, what if they do contest your claim? Think long and hard about the merits of pursuing action for recovery. I have experienced this personally and as a professional in the legal sector and the stress/strain of court is sometimes unbearable no matter how right you feel your claim is. If an action backfires it can have dire consequences on your future. I personally am not hear to spend my money teaching people a lesson, thats the role of the government and the judiciary. I would not be happy spending several hundreds of pounds further on a person who owes me money who then gets a paltry award of a few pounds a month.

Romain Garcin

13:07 PM, 8th May 2015
About 6 years ago

A guarantee is usually not a contract as there is no consideration. Hence why they are executed as deed.
Therefore I am not sure how UTCC 1999 could or would apply.

However, this also means that guarantees may be tricky to get right and enforceable as a court will want to be sure that onerous terms were clearly understood.
I think that if in doubt a court will refuse to enforce such guarantee, and that may well be the case here.

(Off-topic but a real pet-peeve of mine: Superstrike did NOT decide that a SPT is a new tenancy, it was already clear and established before that case).

Ian Narbeth

16:53 PM, 8th May 2015
About 6 years ago

Reply to the comment left by "Romain Garcin" at "08/05/2015 - 13:07":

"A guarantee is usually not a contract as there is no consideration. Hence why they are executed as deed."

Forgive me Romain but what I think you mean is that a guarantee may not be enforceable as a contract if there is no consideration. A guarantee IS a contractual agreement that creates a secondary obligation to support a primary obligation of one party to another.

That said, I don't see how that affects the position under the UTCC 1999. Surely it is not the case that the consumer loses the protection of the Regulations if he signs the document as a deed? That would drive a coach and horses through the consumer protection legislation.

Furthermore the guarantor's failure clearly to understand what he has signed ought to be irrelevant. Otherwise every such guarantee is potentially impeachable and no third party purchaser or lender could accept it at face value without a thorough investigation into the circumstances of its creation.

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