As a landlord, you strive to find a tenant whose income, credit history, and recommendations satisfy your criteria. Sometimes, particularly when properties available on the rental market outpace demand, the only potential tenant may not check all the boxes on your list of qualifications. Instead of losing someone who may turn out to be a great tenant, talk to a real estate lawyer about including a lease guarantor.
A rental applicant may fall short in your tenant screening because of a new job or poor credit history. Adding a lease guarantor lets you take a chance on the person while minimizing your risk of loss in the event of a tenant default.
What is a guarantor on a lease?
Generally speaking, a guarantor refers to someone who agrees to be responsible for the payment of a financial obligation owed by another party. A bank may condition its granting of a loan on the borrower having a guarantor willing to sign the promissory note and be responsible to pay the debt should the borrower fail to do so.
A lease guarantor essentially serves the same function by promising to be responsible for rent and other payments when the tenant defaults on a lease.
What’s the difference between a lease guarantor vs cosigner?
Do not confuse a guarantor with a co-signer or co-tenant. A landlord cannot attempt to collect rent from a lease guarantor until after a tenant has defaulted. Co-signers and co-tenants have the same duty as the primary tenant to pay rent, so a landlord can demand payment from them without first asking for it from the primary tenant.
The other distinction between guarantors and co-tenants or co-signers has to do with occupancy of the rented premises. Guarantors generally do not have occupancy rights under a lease as would someone who signs a lease as a co-signer or co-tenant.
When should a landlord require a lease guarantor?
A lease guarantor reduces the risk of loss for a landlord in case a tenant fails to pay the rent or otherwise breaks a lease. A landlord may ask for a guarantor from a potential tenant under the following circumstances:
- A tenant with bad credit and low credit scores.
- Tenants with no credit cards, loans, or other types of credit history.
- First-time renters who cannot provide a reference letter from previous landlords.
- Individuals working at jobs that do not pay a steady salary or hourly wage, such as tenants who are freelancers, self-employed, or work on a commission basis.
- Potential tenants who just started a new job and do not have a work history.
The financial risk to a landlord who decides to take a chance on a potential tenant is minimized when someone with excellent credit and substantial income agrees to guarantee the performance of the lease terms in the event of default by the tenant.
Can anyone be a lease guarantor?
Anyone capable of proving they have the income and assets they are willing to commit to payment of the rent and other lease obligations in the event of a default by a tenant may guaranty a lease.
Who is the guarantor on a lease?
Guarantors of residential leases tend to be the parents, employer, or friend of the tenant.
Owners of commercial property may be unwilling to rent to a business entity, such as a corporation or limited liability company without a guarantor.
A landlord may require a personal guaranty of the lease by one or more of the business owners in order to have their personal assets available to satisfy the financial obligations of the lease in the event of the default and insolvency of the business entity.
Benefits of a lease guaranty
Lease guarantors put their good credit and assets at risk by agreeing to guaranty a lease on behalf of a tenant without deriving any financial gain. The risk taken by someone willing to guaranty a lease allows a tenant who may not meet all the financial criteria of a landlord to rent property.
The ability to have someone guaranty the rent and other financial obligations helps a tenant who may not have the additional security deposit or advance rent deposit needed to satisfy a landlord’s reservations about entering into a lease.
Property owners minimize their risk of financial loss by knowing they have assets and income of a third party available in the event of a default by a tenant. If the tenant does not pay rent, the guarantor must either pay it or risk being sued by the landlord.
How to add a guarantor to a lease?
Laws differ from state to state, so landlords who are considering renting to a tenant based on a lease guaranty should obtain legal advice and guidance from a real estate law attorney in the state where the property is located.
The credit, income and assets of the lease guarantor must be checked and verified, and the terms of the guaranty included in the lease to ensure the rights of the landlord are protected.
Steve Howards has been writing legal-centric articles for several years now. He started working with the personal injury attorney law firm Herrig & Vogt in 2019 as the Content Marketing Manager, which has allowed him to expand on his writing in personal injury, family law, and much more. Steve strives to offer the public advice on various laws covering a variety of practices.