What do you do when you think you have found the perfect tenants for your property but they fail a credit check? Should you go ahead and let them move in — or tell them to find somewhere else to live? I suppose it really depends why they failed the referencing. If it is because they have got county court judgments against them or a history of bad debt, then I would definitely turn them away.
But tenants can fail for other reasons, such as their previous landlord not bothering to confirm their address, or, quite often, because their income is too low in comparison to the rent.
Faced with this situation, you have the following options:
- Say, to hell with it, let them move in and hope they don’t let you down
- Ask them for 6 months rent in advance and insert a 6-month break clause in the contract so you can serve them with notice to quit if they skip any payments after the first 6 months
- Ask them to provide a guarantor
What is a guarantor?
A guarantor promises to cover the rent if the tenant won’t or can’t pay, and they are also legally bound to refund the landlord if the tenant causes any damage to the property or does a runner with the furniture. Essentially, the guarantor takes on all the responsibilities of the tenant.
To be any use at all, a guarantor must be based in the UK and ideally they should be a homeowner or at least have sufficient income to cover the rent.
A letting agent recently tried to fob me off with a tenant who was offering to put up his father as a guarantor, even though the father was French and living in Paris. Now, I’ve nothing against Frenchmen, I think they’re rather splendid, but if the tenant had defaulted on the rent and Papa had given a Gallic shrug, I knew it would be nigh on impossible to recover any money via the French courts, so I said: “Non, merci,” to that suggestion.
You’ll need to run a separate credit check on the guarantor and they should either sign the tenancy agreement, along with the tenants, or they can sign a Deed of Guarantee instead.
Using a Deed of Guarantee is slightly more complicated than getting the guarantors to sign the tenancy agreement, but it is probably quicker in situations where you have multiple tenants and multiple guarantors. As each guarantor and tenant must sign the same copy of the tenancy agreement, this can take ages (unless you’re relying on digital signatures, which are used by online letting agent OpenRent), so sending out Deeds of Guarantee can speed up the process.
You can download a Deed of Guarantee form which I found on this fab website, Property Hawk (propertyhawk.co.uk), which has lots of other documents for landlords, many of them free.
You can post or email a copy of the Deed, along with a copy of the tenancy agreement, to the guarantor to sign and return to you.
Important points when using a guarantor
Two things to remember with a Deed of Guarantee: it must be signed BEFORE the tenancy agreement is signed by the tenant, and the guarantor’s signature MUST be witnessed. I am told that it’s fine to accept digitally signed documents, which helps if the guarantor doesn’t live locally. Guarantors don’t sign the tenancy agreement itself when using Deeds, but they should see a copy so that they know exactly what they are agreeing to.
Then all you have to do is attach the Deed of Guarantee to the tenancy agreement signed by the tenants — and cross your fingers that you never have to use it.
If the tenancy is renewed at the end of the initial lease, you must ask the Guarantors to sign the new lease or sign a new Deed.