Who needs a guarantor agreement?

by Readers Question

11:35 AM, 4th September 2019
About A year ago

Who needs a guarantor agreement?

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Who needs a guarantor agreement?

Legal opinion appears to be that it is difficult to create a guarantor’s agreement that can be enforced. Apparent problems include:

• It must be executed as a Deed.
• LL must advise Guarantor to take legal advice before signing.
• Deed probably needs to be signed after the tenancy has started.
• (and therefore) having an enforceable agreement that applies to replacement tenancies (including ASTs) is difficult.

The value of a guarantor agreement is probably more in the threat and fear of legal action rather than in the reality of enforcement through the courts.

BUT there appears to be a better alternative: Name the home-owning guarantor as a joint tenant

• It is not necessary for all named tenants to live in the property for it to be an AST.
• LL can use S8G8 to pursue the guarantor.
• If there are issues detrimental to the guarantor, then guarantor can serve notice to quit once the tenancy becomes periodic.

Of course, LL still needs to vet the guarantor to the same standard to make sure that Guarantor is acceptable and does indeed own his home.

Michael


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Comments

Luke P

11:52 AM, 4th September 2019
About A year ago

Is there not something about the property being (or rather not, in the case of a co-tenant guarantor) their primary main residence?

Having checked whilst typing the above, an AST can only arise if the conditions of s.1 of the Housing Act (1988) are met...

There must be a tenancy (as opposed to a licence).

Property must be a dwelling-house let as a separate dwelling (bedroom constitutes 'dwelling-house').

Tenant must be a person or, if joint tenants, at least one must be a person. The tenant **(or at least one of the joint tenants) must occupy the dwelling house as their only or principal home.**

Hmm...

Freda Blogs

13:05 PM, 4th September 2019
About A year ago

I always get guarantors to sign before the tenants sign the AST and definitely before the tenancy starts. Otherwise you have no leverage.

Michael Barnes

15:04 PM, 4th September 2019
About A year ago

Reply to the comment left by Luke P at 04/09/2019 - 11:52
"Is there not something about the property being (or rather not, in the case of a co-tenant guarantor) their primary main residence?"

Only one of the people named as the tenant have to live there as their main residence, otherwise, I believe, it becomes a common law tenancy.

Common law tenancy, I believe, can still be ended by one of the people named as tenant giving notice to quit, and by LL giving notice to quit.

Michael Barnes

15:06 PM, 4th September 2019
About A year ago

Reply to the comment left by Freda Blogs at 04/09/2019 - 13:05And that appears to be part of the problem.
I have heard from legal professionals that a deed of guarantee for something that does not exist at the time of executing the deed (or something along those lines) cannot be enforced.
And once it exists, then what is the incentive to sign?

Luke P

15:10 PM, 4th September 2019
About A year ago

Reply to the comment left by Michael Barnes at 04/09/2019 - 15:06
Logistically speaking, tenant and guarantor sign pretty much at the same time, though the tenant going first and time-stamping their signature and the guarantor to follow. If the guarantor refused to sign at that point, the document would be torn up and no keys handed over.

Dylan Morris

9:33 AM, 5th September 2019
About A year ago

I always understood one of the qualifying criteria to be a tenant was you had to be in occupation of the property. So somebody named on an AST as a tenant and not living in the property (and no intention to do so) would not legally be a tenant. Would a legal expert (perhaps Mark Smith) be able to kindly confirm ?

Luke P

10:32 AM, 5th September 2019
About A year ago

Reply to the comment left by Dylan Morris at 05/09/2019 - 09:33
I answered that above. S.1 of The Housing Act (1988) effectively states:

The tenant **(or at least one of the joint tenants)** must occupy the dwelling house as their only or principal home.

Michael Barnes

20:56 PM, 5th September 2019
About A year ago

Reply to the comment left by Dylan Morris at 05/09/2019 - 09:33
You are wrong.

One does not need to be in occupation to be a tenant; one needs to have the right to use the property to be tenant. Otherwise you could not grant a tenancy to a company.

Luke P

23:20 PM, 5th September 2019
About A year ago

I should perhaps have gone on to say…in order for the tenancy to qualify as an AST.


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