Should guarantees be signed as a deed?

The short answer is ‘sometimes’.  However, if you do not sign as a deed, you may risk the guarantee being unenforceable.

A guarantee is a contract made between the landlord and the guarantor whereby the guarantor promises to pay  the tenant’s debt to the landlord in certain circumstances – ie if the tenant is liable and the landlord has given notice to the guarantor that they are required to pay.

About contracts

So to see if the guarantee is valid we need to look at contract law (which is covered in our Legal Basics course here).

To create a valid contract there needs to be

• An offer
• Acceptance of that offer, and
• What lawyers call ‘consideration’

Now consideration is nothing to do with being considerate.  In contract law ‘consideration’ is something of value.  To create a valid contract, there needs to be an exchange of value (or consideration).

So when you go to a sweet shop and buy a bar of chocolate, the consideration from the shop owner is the bar of chocolate and the consideration from you is the money that you pay for it.

But consideration does not have to be money.  It can be anything.  It also does not have to be a ‘market value’.  So it can be a peppercorn or an agreement not to sue someone for a couple of weeks.

‘Consideration’ and guarantees

So what is the consideration for a guarantee?  The consideration is

• from the guarantor – the agreement to pay the tenant’s debts (as described in the guarantee deed), and
• from the landlord – accepting the person being guaranteed as your tenant

However, if the tenant has already signed the tenancy agreement at the time the guarantee is signed – then there is no consideration.  As the tenant is already the tenant!

And in contract law, there is a saying that ‘past consideration is no consideration’.  So if you have already given someone something, it cannot be part of the bargain for a new contract.

How this affects signing guarantees

So if the guarantor signs the guarantee well in advance of the tenant signing the tenancy agreement (and you know you will be able to prove this if challenged) then you are fine.

However, if this is not the case, you should sign the guarantee ‘as a deed’.  As a deed is enforceable regardless of whether there is consideration involved or not.

To sign as a deed, the document needs to say it is signed as a deed and the guarantor’s signature needs to be witnessed.

Because of this problem many landlords and agents arrange for all guarantees to be signed as a deed.

There is a government guidance document on the signature of deeds here.

Note that the witness should be an independent adult who is not a party to the tenancy agreement. For example, a tenant should not act as a witness.  It is best to use someone like a neighbour, or a professional person.