Guarantors in Mortgages and Letting Agreements

Who is a Guarantor

A guarantor is a person who agrees to take responsibility for an existing or a future liability of another person (the principal) to a third party. A guarantor is therefore seen as a surety in assuming a secondary liability for the person who remains principally liable.

A Guarantee Agreement

A guarantee agreement is an agreement usually in writing whereby the guarantor promises to be responsible with the principal under a contract for his or her obligation to a third party. The guarantor will therefore be personally liable if the principal does not perform his or her obligation under the contract.

Discharge

If a contract between a principal and a third party is materially varied then the guarantor will in principle be discharged from his or her obligations. However, this does not apply to a person undertaking a primary liability.

Owing to the fact that liability of the guarantor is usually co-extensive with that of the principal debtor if the debtor is discharged, the guarantor will also be discharged.

Performance Guarantee

A performance guarantee is a contractual undertaking that is usually granted by banks to pay or repay a sum of money as a result of any default in performance by the principal debtor of another contract with a third party.

It is possible for the liability of a bank to arise from a mere demand by the third party even if evidentially the principal debtor is not in default in relation to his or her obligations.

Guarantor in Letting Agreements

A guarantor in relation to a tenancy agreement is usually required in the following:

  • Tenants in receipt of state benefits (usually housing benefits)

  • Students or shared tenancy

  • Tenants with poor credit rating or inability to obtain satisfactory references

  • Landlords’ doubts about Tenants’ ability to pay monthly instalment of rent

A guarantor is usually expected to satisfy the following requirements:

  1. UK resident

  2. Home owner (ideally)

  3. Good credit rating

  4. Ability to pay the rent due under the tenancy

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For more information on:

  • Guarantor in Mortgages 
  • Rights and liabilities of a Guarantor