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How Can Landlords Protect Their Income?
Given the current widespread economic uncertainty, the financial outlook for many is looking hostile to say the least, with no end date in sight. Whilst many of those impacted by the on-going COVID-19 outbreak look to secure their next pay check, landlords are unsurprisingly doing the same.
Simply put a guarantor is an additional party that can be involved in the tenancy agreement at the discretion of the landlord. The guarantor is legally obliged to cover any overdue rental payments that the tenant of the rental property fail to make, acting as a measure to ensure that the landlords receives the expected rental payments outlined in the tenancy agreement. Whilst this is perhaps most commonly seen amongst those that choose to rent their accommodation out to full time students, the application of having a guarantor has seen use for tenants that are considered “high risk” and may have issues consistently meeting the rental payments. With this in mind, landlords will typically favour requesting the tenant find a guarantor if they have a low credit score, inconsistent or reduced income, receiving financial support, or any other reason that would cause the landlord to have apprehension of the resident defaulting on their rental obligations.
It is essential to note that a guarantor would be undertaking a number of legal obligations that the tenant of the property is also bound to, making the guarantor susceptible to each clause that comprises the tenancy agreement. Whilst this obligation is most commonly associated with any rental arrears the occupants of the property may have accumulated, this is not the exclusive duty of the guarantor, seeing them also potentially cover the costs of any damage caused to the rental by its occupants, the associated costs of repairing or replacing the properties furnishings and any other expenses the landlord may incur due to the tenant failing to comply with the terms of the tenancy agreement.
The duty of the guarantor is not one to be taken lightly as it is essential to note they are legally bound to cover these expenses and overdue payments, as if the guarantor fails to do so they can be taken to court for non-compliance.
In spite of the guarantor only having to be over the age of 18 years old, perhaps due to the saturation of students in the rental market, guarantors most commonly take the form of the tenant’s parent or another close relative. Naturally this close relationship with the tenant bears the benefits of both parties being aware of the tenant’s financial ability, with the tenant also being less inclined to see the guarantor as simply another way of paying rent. However, particularly applicable for those signing up to be a guarantor for a student, if the type of agreement the tenant is entering into is a joint tenancy, despite there being multiple occupants only one guarantor will be required. Whilst this does arguably make renting more accessible for a number of tenants and allow the landlord to avoid referencing dozens of tenants and guarantors, the guarantor themselves is left in what could be considered a rather undesirable situation. This is because rather than being solely responsible for the financial obligations of a single tenant, they are instead held accountable for any damages, overdue rent and expenses for the household, meaning they are responsible for all the residents in the rental property. With this in mind, whilst uncommon, it is possible for a landlord to request a tenant to source multiple guarantors; of course this only works as an additional safeguarding measure for the rental property owner, and only works to have all parties involved enjoy additional peace of mind.
Naturally, with the probability for the guarantor to fulfil their purpose hinging on their financial capabilities, landlord will want to accurately determine the suitability of each person willing to be a guarantor. To this end guarantors will be subject to a similar scrutiny to that of a tenant going through the referencing process. A comprehensive assessment of the guarantor’s credit history, alongside any overdue or missed payments will be taken, with any CCJ’s and court orders also being evaluated. Additionally, the prospective guarantor will have their employment history, current employment status and income evaluated to determine if they would be able to meet any outstanding or missing payments that they would be required to pay in lieu of the tenant.
For landlords hoping to make use of a guarantor in their future tenancies, it is essential to remember that whilst a separate agreement is commonly drafter for the guarantor, including their terms within the original tenancy agreement not only reduces unnecessary administrative work, but clearly outlines all of the terms they will be liable for alongside the tenant.
However, with all of this being said it is worth noting that a guarantor would only be liable for the terms outlined in the agreement, therefore if the landlord wishes for the tenants to sign a new tenancy agreement, the existing guarantor is in no way obliged to proceed with the renewed terms and is alleviated from their duty upon a new agreement being signed. Additionally a landlord can either be classified as a primary obligator or to indemnify the landlord against any loss. If the guarantor is considered a primary obligator they will only be liable for any payment until the end of the set tenancy period; however, if the tenant is indemnifying the landlord against any loss they will be held accountable for covering costs the landlord incurs until they are released from the contract.
Rent in Advance?
Whilst this is sometimes confused with the holding or tenancy deposit a landlord will often request at the start of a tenancy, it is not uncommon for a landlord to ask for their tenants to pay a number of their future rental payments in advance. Again, this is a strategy usually employed when renting to those that have an uncertain financial situation such as students, but can be viewed as a compromise that allows for a certain demographic of renters that would otherwise struggle to find a new home, whilst providing the rental property owner with a dependable income. With this being said if the tenancy agreement that is held between the tenant and the landlord is verbal, the property owner will be unable to request that any sums of due rent should be paid in advance; therefore when such a request is made the exact amount of rent paid in advance can be clearly stipulated in written form, alongside the other terms of the tenancy agreement.
As it currently stands there is no legal limit on the amount of rent a landlord can ask a tenant to pay in advance. However, with this being said it is essential for landlords to consider that if they ask a tenant for an exorbitant amount of rent upfront, it is more than likely that they will deter the prospective renter from proceeding with the agreement, whilst potentially making it too expensive for a large pool of potential tenants to afford. The amount that landlords will typically request to be paid in advance of course varies between tenancy agreements; however it is common for rental property owners to ask for up to six months’ rent from their tenants before they move into the property.
As previously mentioned, there can on occasion be some confusion between the various payments a tenant can make on the outset of a tenancy period, with any advanced rental payments possibly becoming confused with the tenancy deposit. With this in mind it is essential for landlords to detail any sums that they take from a tenant during this period, outlining what each sum is attributed to.
Alternate Payment Arrangements
Naturally, if a tenant has their working hours or income reduced potentially leaving them unable to meet their commitment to pay the expected rental amount, the landlord may begin to feel apprehension surrounding the security of their own income. Whilst if a tenant is struggling to meet their financial commitments, open discussions with the landlord could lead to temporary rent reductions or other payments arrangement whilst the residents seek financial support. If however the tenant starts to struggle to budget effectively whilst receiving the financial support in the form of Universal credit, it is possible to have these benefit payments paid directly to the landlord.
Commonly referred to as an alternate payment arrangement, these plans can be established at any point during the tenant’s claim for universal credit. If the landlord, case manager or tenant believes that extra assistance is needed in budgeting the monthly universal credit payments an alternate payment arrangement can be put forward. However, these financial measures cannot simply be implemented at the whim of the landlord, with the tenant’s universal credit case managers working to determine the plans appropriateness through multiple factors. Typically they will assess the tenants historical ability to make their due payments for household bills and rent on time, the tenants current outgoings, and if the tenant is in a venerable financial position or close to homelessness.
It is also possible for a managed payment to landlord be set in place. These are usually considered once the tenant has accumulated more than two months of overdue rent, or where the tenant has consistently neglected to pay the full rental amount. However, it is worth noting that once again this is simply a request and the full implementation of the managed payment to the landlord will be determined by Universal Credit. If the request is denied the landlord does not have to be provided with any reasoning for the decision or confirmation that the tenant is receiving any financial aid.
Rent Guarantee Insurance
Rent guarantee insurance, sometimes called tenant default insurance is a policy for landlords that allow them to effectively safeguard their rental income. Whilst many insurance providers will first demand that their landlords conduct thorough referencing checks on any tenant that they wish to take this policy out against, tenant default policies will protect the landlord in the event that an occupant of the insured rental property fails to pay their rent. It goes without saying that the specifics of each policy will change depending on the insurance provider but typically the landlord will be covered for any missing rental period irrespective of what they charge for their monthly rate. This is because the insurance policies will cover these missing payments up to a pre-determined value, or for a set time frame which is commonly around a year. Some insurance providers will also go as far to provide the landlord with their legal fees and any costs incurred in pursuing the missing rent from the tenants.
With this being said some insurance providers will not cover the landlord in the instance that the tenant that is in rental arrears vacates the property either through the landlord seeking possession of the property or eviction. Additionally, landlord must examine the terms of these policies to ensure that they are covered as in some cases if the residents of the rental are accepting universal credit, have a poor credit history, or are full time students, no payments will be made by the insurer to cover the missing rent.
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