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.
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.
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:
Home owner (ideally)
Good credit rating
Ability to pay the rent due under the tenancy
For more information on:
- Guarantor in Mortgages
- Rights and liabilities of a Guarantor