A guarantor clause in tenancy agreements

Many landlords understandably require a guarantor as added security when renting out a property. A guarantor is someone who will step in if the tenant fails to pay rent or damages the property, for example.

It is important to ensure a carefully and properly drafted guarantee or run the risk of the guarantee not being legally enforceable. Without a properly drafted clause, the landlord cannot hope to enforce the guarantee, which might then lead to them serving a formal notice on the tenant terminating the tenancy and requesting vacant possession of the property, to limit their financial risk.  

You often see guarantor clauses within tenancies between university students and a landlord, where a parent or guardian usually signs as guarantor.

What makes a guarantor agreement enforceable?

Guarantees are contracts and must, therefore, conform to the basic requirements of a contract, that is:

• Offer and acceptance: there must be a clear agreement between the landlord and guarantor on the terms.
• Consideration – something of value must be exchanged. In tenancy situations, this can be tricky as the guarantor doesn't get the same "benefit" as the tenant, making this element hard to prove.
• Intention to create legal relations – the parties must intend to enter a legally binding arrangement. In commercial settings, this is usually assumed.

How to avoid the 'consideration trap'?

As explained above, consideration is required for a guarantee to be valid. In accordance with general principles, for consideration to be present, a contract must involve one party giving something of value to which the other party is not already entitled, in exchange for contractual promises. In the context of residential letting, it may be possible to argue there has been consideration by way of a simple promise, which is that the guarantor has promised to take on the liability of the tenant, should they default and not pay rent, for example as it falls due, in order for the landlord to agree to let the property to the tenant, where it would not have done so, without that guarantee.

One way around the issue of consideration is to execute the guarantee agreement as a deed. A deed doesn't require consideration in order to be enforceable. However, it must follow certain formalities:

• Be in writing
• Be clearly expressed to be a deed
• Be signed by the guarantor in front of an independent witness
• Be formally delivered as a deed

If these steps are followed, the agreement will generally be enforceable, even if it does not directly benefit the guarantor.

Guarantees are frequently drafted as and signed as a deed, however there is no legal requirement for this. While a deed is legally binding and doesn't strictly require separate consideration, like a contract does, it's still best practice to include a statement of consideration in the guarantee to ensure enforceability, taking a cautious approach.

To summarise, a guarantee which is not given by way of a deed will not be enforceable unless consideration has been given in support of it.

Do the guarantor's obligations need to be clear within an agreement?

The guarantor's obligations must be explicitly spelt out so that it is clear what they are guaranteeing. If there are no provisions within the tenancy which confirm the obligations placed upon the guarantor, for example, covering rent payments if missed by the tenant, then it is likely that the guarantee would be unenforceable. If your agreement only refers to "rent," or does not mention any other obligations for example, you won't be able to pursue the guarantor for damage to the property or legal costs unless those are specifically included.

This is confirmed in the case of Blest v Brown [1862], which states that any liability imposed on the guarantor should be clearly set out in the guarantee so that it can be viewed as having been deliberately taken on by the guarantor. A guarantee will only cover that which the Court strictly interprets the guarantor as being liable for, and no more.

Contracts of this kind must be strictly construed in favour of the surety (guarantee), and no liability is to be imposed that is not clearly and distinctly covered by the contract. Essentially, you cannot guarantee anything which has not been explicitly included in the contract.

If the tenancy is silent on the obligations of the guarantor, or said obligations are not sufficiently defined, you may face difficulty in showing an offer and acceptance of the relevant terms, meaning if the matter were ever to escalate to a Court, it is unlikely that the Court would enforce the guarantee as it is not clear what the guarantor is actually agreeing to guarantee.

As best practice, the guarantor's obligations should be clearly identified, making it clear what the guarantor is liable for and the extent of their potential liability.

Another common oversight is failing to account for what happens when a fixed-term tenancy ends. If the guarantor's liability isn't extended to cover any statutory periodic tenancy that arises after the original term, you may find yourself without recourse for arrears, or others debts that accrue later.

Statute of frauds

Next, we must consider Section 4 of the Statute of Frauds (an Act passed in 1677 and given this title by the Short Titles Act 1896). This Act states that for a guarantee to be enforceable, the said guarantee must be 1) in writing and 2) signed by the guarantor or a person authorised by the guarantor.

How can you protect yourself as a landlord?

Don't leave it to chance if you're a landlord relying on a guarantor. Make sure your agreement:

• Meets the legal criteria for a contract, or is executed as a deed
• Abides with the Statute of Frauds as illustrated above
• Is specific about what the guarantor is responsible for
• Covers future tenancy periods
• Is executed correctly

A properly drafted guarantor agreement is your safety net, but only if it's enforceable.