Rent guarantor service – Should I proceed?

by Readers Question

15:01 PM, 20th January 2020
About 4 weeks ago

Rent guarantor service – Should I proceed?

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Rent guarantor service – Should I proceed?

I have been a landlord for over 20 years and I generally manage my properties without using an agent. We currently have a property empty and have been approached by a prospective tenant who works full time.

The only problem is that she has informed me that she has a poor credit rating. I appreciate her honesty and explained that we may consider her application if she has someone who will act as a Guarantor.

Sadly, she does not, but has found a company online who offers guarantor agreements to people in her situation. I’ve researched the company and they appear to be kosher, but I’m wondering if anyone has any recent experience of these types of company and any advice on what I should be aware of etc please if I decide to proceed?

Auntie P



Comments

Gary Nock

17:06 PM, 20th January 2020
About 4 weeks ago

These companies usually only offer guarantors on payment of a lump sum - usually based on amount of rent. And they are tenancy limited.

Before the Tenant Fees Act 2019 some tenants used to use these. They would pay the £500 or so and then after the 6 or 12 months they would renew. Or not as the case may be. You could control the situation before they moved in by not allowing the tenancy to commence until the guarantor was in place. Once they are in then if they didn't renew then the guarantor agreement ran out but tenancy continued -you have no guarantor. So you are vulnerable. And any rent guarantee on the tenant with guarantor provision is void.

In addition following the Tenant Fee Act 2019 you are not allowed to charge for guarantors as per page 24 of the guidance:

https://www.gov.uk/government/publications/tenant-fees-act-2019-guidance

"Q. Can I charge a tenant for a rent guarantor?
No. You can ask a tenant to provide a suitable rent guarantor as a condition of granting the tenancy; however, you cannot ask the tenant or their guarantor to pay any fees associated with meeting this condition (e.g. referencing or administration
costs)"

Now if you ask the tenant to pay a fee for one of these companies then it is quite possible you could be in breach of the Act. First offence up to £5,000. Second offence up to £30,000.

If she can't find someone to act as a guarantor other than one of these companies then I would recommend finding another tenant.

Auntie P .

7:25 AM, 21st January 2020
About 4 weeks ago

Reply to the comment left by Gary Nock at 20/01/2020 - 17:06
Thanks for your quick response, much appreciated. Just to clarify she came to us with the idea of using this company for a guarantor, so it isn’t like we asked her to arrange it. I get your point about if the company refuse to renew the guarantor agreement after the 12-month fixed term has ended. Would I just be able to not provide another contract at that point unless there’s a guarantor ? I’m not desperate but this property has been on the market for several months with very little interest other than from people just like her or in a worse situation. And at least she’s in full time employment. Our previous tenant moved out after five years and I remember we had a choice of several prospective tenants at that time .... it’s a VERY different market now. The time to get out of the PRS is drawing near me thinks!!

Dr Rosalind Beck

9:52 AM, 21st January 2020
About 4 weeks ago

I wouldn't go near this tenant. Have you done a credit check on her? The ones I get from the Guild of Residential Landlords, as a member, are £9, tax deductible. I have had tenants say they have a small debt, but conveniently forget the huge one they have in addition. I have also had two prospective tenants and their guarantor all tick 'no' regarding CCJs on their application forms, while credit checks showed all 3 had very significant CCJs - probably from previous landlords, judging by the amounts. I think that if someone has shown they are willing to not honour their debts that is too big a red flag for me, as they will do the same to others.

Alex

15:58 PM, 21st January 2020
About 4 weeks ago

Hi Auntie P,

We have a relationship with a business that provides this service. It does not fall foul of the TFA 2019 it the tenant chooses to use them and the tenants still has a choice of satisfying your requirement for a Guarantor without paying for the service, i.e. by providing a family member to act as Guarantor.

Again, from page 24 of the guidance:

"Q. Can a tenant opt to pay for a third-party service?

A tenant can use the services of a third party if they choose to do so. For example, a tenant may use a reference checking company, a deposit replacement product or an inventory service. However, a tenant cannot be required to do so by a landlord or agent in connection with a tenancy.
You cannot require a tenant to meet any conditions that could only be met by paying a fee for a third-party service (e.g. requiring a professional clean at the end of the tenancy). However, you may ask a tenant or give them the option to do something as an alternative to complying with a different requirement which is permitted under the ban. For example, if the tenant is required to pay a default fee under a tenancy agreement to cover the reasonable costs of a replacement key, you could give them the option to replace the lost key at their own cost and time through a third-party. Alternatively, you may give a tenant the option of using a deposit replacement product instead of paying a tenancy deposit. Where possible, we encourage landlords and agents to be flexible."

In relation to your question regarding when the company Guarantor stops being liable, have you asked them? Generally they expect that an AST would need to be renewed in order to continue to provide the guarantee, but if the tenant refuses to renew their AST, then the company Guarantor may provide runoff cover until the tenant leaves, subject to an appropriate Notice being served on the tenant (i.e. S21), as this may be classed as a breach that their guarantee covers.

It's worth noting that our rent guarantee provider is happy with the company Guarantor, so if they're happy we can get complete cover against the risk of non-payment.

BTW, none of this is a substitute for appropriate tenant referencing, in fact the company Guarantor will probably insist that they are referenced to disclose any adverse credit history. They will almost certainly have a limit of how much adverse credit history the tenant can have and still qualify for the guarantee.

Remember, we all make mistakes in life, so not all tenants with a poor credit history must have a poor credit future. The company Guarantor will almost certainly help you to decide if they are a low or high credit risk, which is a part of the decision making process after all.

Auntie P .

22:13 PM, 21st January 2020
About 4 weeks ago

Thank you for taking the time to share your different experiences of Guarantee provider companies. It has definitely given me food for thought. The tenant in question claims to have already applied to the company and been told she would be eligible (not sure how that worked) but I certainly won’t be entertaining her without carrying out a full credit check.

Marie

14:49 PM, 22nd January 2020
About 4 weeks ago

Reply to the comment left by Auntie P . at 21/01/2020 - 22:13
Absolutely Auntie P! I have never defaulted on a payment in my life, but my Equifax rating is dreadful. I asked to see my credit file, expecting identity theft, but there is nothing on there whatsoever except proof of various contracts I have had over the years with companies such as Sky tv and O2, and always paid in full and on time. I emailed them and asked them. Why is my credit rating so low? They told me it is because I have moved house so many times, I am rarely on the electoral roll, and I have never had a credit card in my 38 years on earth. So it’s very possible that your prospective tenant has never even been in debt, or has mistakes on their record. Don’t judge until you have seen the evidence.

HardworkingLandlord

13:41 PM, 26th January 2020
About 3 weeks ago

You can also take rent in advance e.g. 6 months in advance but if you, you must must must be clear that at month 4, you collect the next 6 months rent. Do this for a year or so until you build trust to move to monthly payments which worked well for a new East European immigrant with no credit record.

But remember that 4 month rule must be strictly enforced and written into the contract. The problem I had with another tenant was they relaxed for 6 months and didn't raise funds the next round of funds so by the time I got the next 6 months, she was already 2 months behind i.e. month 8. This got worsensed and eventially I ended with an unpleasant eviction. If you make the 4 month rule clear up front, chances are that the tenant will plan and arrange to raise funds by month 5-6 - always leaving you with some buffer. If they cannot agree, then don't take them. Good luck

HardworkingLandlord

13:49 PM, 26th January 2020
About 3 weeks ago

Sorry I should also add a general rule about personal guarantors - don't ever sign with such a guarantor in Scotland if you are in England/Wales - different legal system means that a Scottish guarantor can obstruct an English small claim case by asking for it be transferred to a Scottish court meaning you have to travel to Scotland for hearings and the Scottish system runs at a snails pace compared with say, a London court.


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