Guarantors – Unfair Terms in Consumer Contracts Regulations 1991

Guarantors – Unfair Terms in Consumer Contracts Regulations 1991

9:51 AM, 5th May 2015, About 6 years ago 59

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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



Comments

by Romain Garcin

18:30 PM, 8th May 2015, About 6 years ago

Reply to the comment left by "Ian Narbeth" at "08/05/2015 - 16:53":

Hi Ian,

My point is that the UTCCR 1999 specifically applies to contracts, and that a guarantee is usually not a contract (whether or not it is executed as a deed).
Furthermore, even if a guarantee is a contract the regulations exclude the main subject matter and the price or remuneration of the service supplied.

Therefore, it is not obvious (to me at least) how the regulations apply to such a guarantee and especially to the subject matter of the guarantee.

I think that the main issue is that, as I understand it, guarantees usually cease to be enforceable if the terms of the underlying agreement (the tenancy) change and the guarantor hasn't agree to the new terms.
This seems to be the main problem when trying to create a guarantee that continues over several tenancies, and, e.g., rent increases.

by Gary Nock

10:27 AM, 9th May 2015, About 6 years ago

I agree with Wayne. The UTCCR defence is unlikely to succeed as if it did all guarantors contract would be null and void. And if a rent was set "individually" for that tenant, and the guarantor "individually" agreed to it then it is compliant. But check with letting agent that a Deed of Guarantee was done and the "magic words" on legal advice were either on the Deed or in a covering letter to the Guarantor.

by Tessa Shepperson

11:27 AM, 9th May 2015, About 6 years ago

There is a general rule about guarantees which is that the guarantor can only be bound by the tenancy agreement he has seen ad agreed to. He cannot be bound by something else which he has not seen and agreed to.

So if the rent goes up, or if the tenancy is amended to include a different tenant, then this will have the effect of ending the guarantee as the tenancy is no longer the same as the tenancy the guarantor agreed to guarantee.

If you put a clause in your guarantee saying that the guarantor will be bound even if the tenancy changes, this clause will inevitably be found to be unfair under the Unfair Terms in Consumer Contracts Regulations as the guarantor cannot be held liable for something he does not know about and has not specifically agreed to.

So I think the defence will succeed and you will not be able to claim agaisnt this guarantor. This is the problem about non-legally qualified letting agents drafting legal documents.

As discussed above I think the following options are available:

1. Pursue the tenants (if you can) - this will not affect your claim against THEM
2. Bring a claim for your losses against the agents - they should have used a proper deed of guarantee and got it re-signed when the rent went up or the tenancy changed.

by Gary Nock

11:50 AM, 9th May 2015, About 6 years ago

Reply to the comment left by "Tessa Shepperson" at "09/05/2015 - 11:27":

Hi Tessa,

I always notify guarantors by letter with a Certificate of Posting if and when a rent goes up, or when a tenancy moves from an AST to a Statutory Periodic. From what your post implies as soon as a rent increase occurs then legally the Guarantee is worthless unless a new AST is done, sent to the Guarantor and a new Deed of Guarantee is signed by the guarantor. But the issue here is that if the guarantor then refuses to be a guarantor again then you definitely do not have a guarantor!! And they know it. At least with a Deed of Guarantee that is out of date you have something that they have signed and can be used in any "process" of getting unpaid rent. In other words unless a guarantor takes legal advice on the legality of the claim against him and pays for that advice then they will not be aware of the issue and may pay up anyway.

A guarantor in the hand is worth two that realise they are no longer guarantors!!

by Tessa Shepperson

11:56 AM, 9th May 2015, About 6 years ago

If you want to do that, it is of course a matter for you. But I think it is a dangerous move to rely on guarantors not knowing their legal rights and paying up when they do not have to!

by Gary Nock

12:13 PM, 9th May 2015, About 6 years ago

Well it is Tessa but I am sure that many guarantors over the years have paid up when, if they had sought legal advice, they would not have done so. Not just on rent agreements - probably on mortgages when interest rates go up and the payment changes, on car loan agreements when a borrower runs into payment difficulties and asks for a reduction in payments ( and doesn't tell the guarantor)

So am I right in thinking then if a tenancy goes from an AST to an SPT then this also voids the original Deed of Guarantee?

by

12:15 PM, 9th May 2015, About 6 years ago

I'm hoping not because I am calling in the guarantee for a tenancy that became an SPT although it has not been an SPT for very long. I haven't altered the rent and in fact I am going after the guarantor not for arrears of rent but for breaches of the tenancy agreement i.e. the fact that the tenant trashed the house before he left.

by Tessa Shepperson

12:39 PM, 9th May 2015, About 6 years ago

If you can show that the damage was done before the end of the fixed term you should be OK. You may be OK anyway if there was no change in the tenancy after the fixed term ended.

Let us know how you get on and whether or not the Judge accepts the defence.

by Tessa Shepperson

12:46 PM, 9th May 2015, About 6 years ago

Reply to the comment left by "Gary Nock" at "09/05/2015 - 12:13":

@ Gary : Not necessarily, it depends on how it is drafted.

For example my guarantee on Landlord Law http:// http://www.landlordlaw.co.uk (which I have to say has not been tested in the courts but I am optimistic if it were) provides for it to continue after the end of the fixed term, but it also provides for the guarantor to end it (not to take effect before the end of the fixed term) upon giving 2 months written notice.

I think this is fairer on the guarantor and so more likely to be upheld in court. If the guarantor serves notice you can then serve a s21 notice on the tenant and say you will not continue the tenancy unless they find a new guarantor.

Note that even my form would not be able to continue the guarantee if the terms of the tenancy agreement change.

by

13:14 PM, 9th May 2015, About 6 years ago

Reply to the comment left by "Tessa Shepperson" at "09/05/2015 - 12:39":

Tessa

There was no change to the tenancy, the tenant just held over. The damage was definitely done during the course of the AST and I have an e-mail from the letting agent notifying me of the fact that the police were called due to anti-social behaviour after a few months of the tenancy commencing. I started to serve him notices to get him out but in the end he left of his own accord but left behind a lot of damage and rubbish. The house had been completely refurbished before he moved in and I have an inventory prepared by the letting agent that confirms this and we took photos of the damage after he left which have all been supplied to the guarantor. I will report back on whether or not we are successful. I hope so as it's wrong that these people should be able to get away with it.


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