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Lease Agreement

What Is a Guarantor Lease?


Apr 29, 2020 by Barbara Zito

Moving is an expensive proposition for both landlords and tenants. Landlords want to limit their number of property vacancies, so it is in their best interest to seek and retain good tenants to reduce turnover among their units. Tenants must pay multiple months of rent and security deposits before taking occupancy of a new place, so it's equally in their best interest to present themselves as responsible tenants who pay their rent on time every month.

But even a signed rental lease is rarely enough to ensure that a tenant will fulfill their obligations. This is where having a lease guarantor attached to a tenant's application is important in preventing problems down the road that could lead to eviction -- which costs both time and even more money for landlords.

Let's take a look at what a lease guarantor is and how having one can help -- or harm -- the relationships between landlords and their tenants.

Who is a lease guarantor?

The tenant/landlord rental lease is simple in that the tenant promises to pay rent on time every month and to refrain from causing any damage to the property.

But as many landlords can attest, this agreement is simple in theory, though certainly not in practice.

Enter the lease guarantor.

A lease guarantor applicant, also known as a cosigner, is the party who claims responsibility for covering all tenant obligations in the event the tenant cannot or will not do so. While the guarantor is normally an individual, such as a relative or a close friend of the tenant, there are also agencies that will serve as guarantors for a fee (comparable to a month's rent).

Of course, not all tenant situations require a guarantor. This is where a landlord's careful tenant screening -- including a credit and background check -- can go a long way to ensure a hassle-free experience during the time of the lease. The screening process will be more or less stringent depending on the property and the landlord.

Even if tenants prove during the screening process that they are responsible and able to cover the rent, a guarantor adds another layer of security for landlords. In general, here are some of the instances in which a landlord would require a guarantor to sign a lease:

  • The tenant has a limited yearly income that falls below the landlord's requirement (typically 40 times the monthly rent).
  • The tenant is a student and will be sharing the space with other students, so the landlord wants assurance by parents/guardians that rent will be paid and property damages kept to normal wear and tear.
  • The tenant is a young adult renting an apartment for the first time and has limited/no credit history.
  • The tenant has just started a new job and has not yet established the required employment history, regardless of salary.
  • The tenant has moved often (possibly indicating problems with paying rent) or is returning to the country after living abroad for a period of time.
  • The tenant is not able to produce a tenant referral, regardless of whether this is the first time renting or they've had problems with landlords in the past.

A lease guarantee enforcement promises not only that the tenant will pay but that the guarantor is able to pay, too. Typically, a guarantor must prove that he or she has 80 times the yearly income of the monthly rent. Why double, even when the guarantor won't even be staying under the same roof? This is to ensure that the guarantor not only has the funds to cover their cosigner's financial obligations but their own expenses as well.

Requiring payment of advance rent (typically first and last months' payments due prior to moving in) is another way for landlords to recoup some of the costs should a tenant fall behind in rent or cause damage to the rental. Most states, however, only allow advance rent to be used toward rent, not damages. That is why landlords also require a security deposit that is refunded only when the tenant moves out and a final inspection of the unit finds it left to the landlord's satisfaction.

How a guarantor lease works

Any disruption in cash flow can be detrimental for a landlord. This is certainly the case for single-property owners but it is also an issue for building owners with multiple rental units.

Building owners especially prefer a guarantor on the lease. The effects of a single delinquent tenant might be negligible at first when there are many other rent checks coming in regularly. However, it's not a practice that any landlord wants to sustain for the long term. To ensure that buildings stay filled with responsible tenants, a guarantor is often required as part of the tenant application process.

Like the tenants themselves, guarantors are also run through a rigorous screening process that includes confirmation of income and a credit check. Guarantors with bad credit will likely be denied, as a low credit score could be evidence of outstanding debts or property foreclosure.

Being a rent guarantor means that your credit will be affected during the screening process. While cosigning for a property will not show up on your credit report as outstanding debt, the inquiry will, resulting in a hard inquiry.

Pros and cons of having a guarantor lease

A major benefit of having a guarantor lease is that the landlord has the recourse of approaching a third party for the back rent or damages if the tenant refuses to pay. In fact, in many guarantor leases, the landlord has the right to go directly to the guarantor rather than the tenant when a rent check is not received. This is why guarantors must make wise choices when cosigning for tenants -- as wise as the landlords should be during the tenant screening process.

Having a third party can be helpful in preventing eviction for delinquent tenants, but even a guarantor is not a guaranty. It comes down to this: Having another party can be helpful, but it can also complicate matters. A landlord will now have to worry about bringing both a tenant and a guarantor to court for failed payment. The hassle can cost a whole lot more than missed months of rent.

In the end, even a guarantor may not be willing to fork over back rent or damages incurred by their cosigner. Like a tenant who is facing eviction still has rights to continue living in the residence for a time, a guarantor has the right to question the need to pay for damages. This is why a residential lease must have all policies and penalties explained clearly, so that all parties are on the same page -- literally.

How to create your own guarantor lease

Again, keep in mind that guarantors are required to cover all of the obligations of the tenants. This means that they are essentially signing the very same lease as the tenant, though they won't be living there themselves. Therefore, it makes sense for guarantors to sign a copy of the same tenant lease.

Items that are covered in a residential lease agreement and should also be included in a guarantor lease include:

  • The parties involved, including the landlord, tenant, and guarantor.
  • The obligations of both the tenant and the landlord.
  • Guidelines for who can live in the rental property (both humans and pets).
  • The terms of the lease, including what happens when the lease is terminated.
  • An option to purchase (if applicable).
  • Notice periods, including how much notice is needed to end the lease.
  • Security deposits and when they are due to the landlord/returned to the tenant.

While the professional advice of a real estate attorney or real estate agent (the latter especially in helping determine fair rent) is always best when contracts and leases are involved, it is not difficult to create a guarantor lease. There are templates available for landlords that can be altered as necessary for the particular rental situation.

In addition to the signed rental lease, the guarantor should sign a form and submit documents including the following:

  • Their name and contact information (with photo ID).
  • Their relationship to the tenant.
  • Their Social Security number.
  • A signed statement affirming their responsibility for all of the tenant's obligations if they are unable or unwilling to fulfill them.

The guarantor should have the signed document notarized if they're not able to sign the contract and present the supporting documents in the presence of the landlord or rental agency.

It is important to include or discuss lease agreement FAQs to address common concerns for the tenant, guarantor, and the landlord prior to moving in.

Also, note that if the tenant's lease is ever altered, the guarantor must be asked to sign a new, revised lease, even if the tenant has already assented to the change. A guarantor has the right to question their responsibility to pay if even the smallest clause has been changed since the original lease was signed.

Getting a delinquent tenant to pay back rent or cover property damages can be a headache for any landlord. However, a strict tenant screening process plus a guarantor lease can help in maintaining a harmonious relationship between landlords and their tenants.

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