Satisfaction not Guaranteed

by Ian Narbeth

9:26 AM, 5th October 2020
About 2 months ago

Satisfaction not Guaranteed

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Satisfaction not Guaranteed

Given current economic circumstances, many more landlords than previously will accept tenants who are or may in future be in receipt of benefits. With the ending of furlough and possible widespread redundancies, many tenants may find themselves in financial difficulties.

The current restrictions on taking action against defaulting tenants make eviction difficult. Even if the restrictions were relaxed tomorrow it is likely to take 12 to 18 months to get to court because of a backlog of cases. Courts are prioritising anti-social behaviour and domestic violence cases. Landlords pursuing rent arrears are put to the back of the queue.

What can landlords do? Rent deposits are limited to five weeks’ rent (six weeks’ for rents of £50,000 or more) which barely covers one month’s arrears. A guarantee from an employed homeowner is an obvious answer.

However, landlords and letting agents need to be careful. The courts construe guarantees strictly against the beneficiary. The guarantee should be executed as a deed and entered into before or simultaneously with the tenancy. Any subsequent variation to the terms of the tenancy must be agreed with the guarantor.

Even if a guarantee is properly entered into there are still problems for landlords. The NRLA forms of limited and unlimited guarantee both allow for the guarantor to cancel the Guarantee once the fixed term of the tenancy ends. The guarantor can give not less than three months’ notice to cancel. The landlord can then within 6 weeks of receiving the notice give notice to the tenant under Section 21 Housing Act 1988 to extend the cancellation period. The landlord must inform the Guarantor he has served the notice and start proceedings for possession within one month of the s21 notice expiring. If the landlord does that the cancellation will not operate for a further period of three months.

Before the moratorium on evictions, this might have enabled a landlord to get vacant possession, but it is woefully inadequate today. Perhaps the NRLA consider it unfair for a guarantor to be liable indefinitely, but the solution encouraging the landlord to evict the tenant is in my opinion not a great idea.

As an aside, serving a s21 notice in such a case looks like a no-fault eviction. The tenant may have paid the rent and complied with the covenants in the tenancy, but the landlord will seek to evict him because the guarantor wants to exercise a right that the landlord has volunteered in the guarantee. Moreover, given the likelihood of s21 being abolished this cancellation right will become unfettered and the guarantor will be released. Why would any guarantor not seek to cancel? If anyone senior from the NRLA is reading this, I would welcome their response. Disclosure: I raised this point with the NRLA in August 2020 but have not heard back.

However, even if a guarantee does endure indefinitely, landlords may wish to amend their standard guarantees where the tenant is or may be in receipt of benefits. Why so?

Well, consider the case where the benefits are paid directly to the landlord. If the benefits are later clawed back because the tenant has been overpaid the landlord may find the guarantee does not work. Standard guarantees expire when the tenancy ends. The clawback may occur only after the tenancy has expired. Even if the tenancy is still running, the wording of the guarantee may not be wide enough to catch the renewed obligation on the part of the tenant to pay the sum that has been clawed back. The guarantor can argue that the tenant had discharged the obligation to pay rent and the guarantee does not catch an obligation to reimburse. I am not aware of that point being tested in court, but it would be an obvious defence for a guarantor to run.

Guarantees should explicitly refer to repaying a sum equal to the amounts clawed back and should also be stated to endure after the end of the tenancy.


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Comments

Robert Mellors

10:28 AM, 5th October 2020
About 2 months ago

That does seem to be a serious fault with the NRLA guarantee documents.
Thankfully my deed of guarantee is for the whole debt (rent, service charges, and damage, etc), owed by the tenant (or former tenant), and it only ends when the whole debt has been repaid in full (so it cannot be cancelled by the guarantor). It also allows for a limited rent increase, but if the rent is increased by more than this then the guarantee ceases in effect from the date of that larger rent increase (thus ensuring that the guarantor is not liable for a rent amount they have not agreed to be liable for).

I would also add that the deed of guarantee should always be signed and witnessed in the presence of the landlord or letting agent, as I had a case where I allowed a tenant to get a guarantor, and the guarantor subsequently denied signing and claimed the signature was a forgery. The court accepted this as I could not prove otherwise. (but likewise nobody could prove the forgery either so tenant got away with the fraud, if indeed it was a forged signature). Also, always check and photograph the guarantor's ID.

Chris Brown

10:28 AM, 5th October 2020
About 2 months ago

Excellent points made.
I look forward to NRLA or SWLA producing revised forms ofguarantee to refelct the entrapped position of lndlords in the present circumstances.

Dr Rosalind Beck

17:49 PM, 5th October 2020
About 2 months ago

Hi Ian
The guarantees drawn up by the Guild of Residential Landlords are expressly designed to continue once the tenancy turns periodic.

I understand though that it is debatable whether the guarantor is allowed to give notice and so the Guild agreement also allows that but on condition that a new guarantor is provided.

Ian Narbeth

9:51 AM, 6th October 2020
About 2 months ago

Reply to the comment left by Dr Rosalind Beck at 05/10/2020 - 17:49
Hi Ros, glad to hear your form of guarantee does that. Allowing a substitute guarantor is reasonable. You might want to check the point about covering clawback after the tenancy has ended.

Mick Roberts

17:06 PM, 6th October 2020
About 2 months ago

Reply to the comment left by Robert Mellors at 05/10/2020 - 10:28
U the Daddy aren't u Rob, on the Legal paperwork.

And yes me too Ian, waiting for Ben Beadle from NRLA to ring me back, as are many others.

Mick Roberts

7:07 AM, 7th October 2020
About 2 months ago

Oops I posted this comment on different thread for u Ian & I think more applies here.

Ben Beadle newish top man of NRLA messaged me last night, he 'says' he's ringing me today. I only talk work Mon to Fri 8 to 5. Sorry my rules ha ha, too many houses to keep going all day.
My agenda slightly different to yours in that we having major UC problems & NRLA not pushing 'em enough. And more Landlords gonna' be effected by UC as time goes on. And as we know, my big bone of Selective Licencing. I shun't have done more for Nottingham Landlords that NRLA. So I & others need more going forward.
Anything u want me to push Ian if we get time? Ring me as I may not come on here again till Thurs morning.

Ian Narbeth

13:57 PM, 8th October 2020
About 2 months ago

With great timing, I have today received an email from James Wood, Senior Policy Officer at NRLA thanking me for contacting them and saying:

"The old NRLA guarantor forms were based on previous legal advice to both the NLA and RLA stating that a cancellation clause was necessary to ensure landlords could enforce the guarantee. After receiving your email we had chance to revisit this and we were pleased to have it confirmed that a cancellation clause was not required. As a result we had the document redrafted and improved, removing the cancellation option for the guarantor. These new versions have now been approved and are up on the website."

Mick Roberts

14:46 PM, 8th October 2020
About 2 months ago

Reply to the comment left by Ian Narbeth at 08/10/2020 - 13:57
Ha ha Yes,

Ben did ring me yesterday, I think I sent him this link to say NRLA need to get on 118 & see what Landlords are saying about NRLA.

I said little old or young me should not have done more for Nottingham Landlords than the big NRLA. I have mates who's with NRLA & said NRLA has done nothing with Licensing in Nottingham, yet I saved Landlords tens of millions of pounds. It should be other way round. I wish to go back to before & slide into obscurity & not now be a target for Licensing.
So Ben did say his aim is get this sorted moving forward as I also said tenants are running amok. I get NRLA can't shout too loud as Govt will stop talking to them, but as it is, it's all going wrong & tenants are ending up worse off.

Old Mrs Landlord

19:13 PM, 8th October 2020
About 2 months ago

Reply to the comment left by Ian Narbeth at 08/10/2020 - 13:57
Well done Ian.

Mick Roberts

8:04 AM, 9th October 2020
About 2 months ago

Reply to the comment left by Ian Narbeth at 08/10/2020 - 13:57Ian, was thinking about u in me sleep-As u do.
With u getting NRLA to change that form after you've spotted an anomaly, this clearly shows NRLA & everyone else, they should be working much more with people like u & us cause we on ground level dealing with things in the real world, we encounter things that ain't the same as the may first appear on nice crispy clean paper in the computer world.
Maybe now NRLA has spotted that & reading this, more joined up thinking progress going forward.
Wish we could say the same about UC & Licensing & DWP & Govt & Councils.

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