When are guarantees invalid?

Many landlords will require tenants to provide a guarantor.  For example, if they are worried about the tenants’ ability to pay.  Guarantees are almost universal for student lets.

However, that guarantee will not remain valid forever.  There will come a time when it will expire or become invalid.

In which case, if the tenant is going to remain in the property, you will have to get them to sign up again.

It is also possible that your guarantee may never be enforceable.  This is sometimes the case if guarantees are not signed as a deed.

Lets take a look at this first.

The enforceability of guarantees under contract law

A guarantee is a contract, and as we explain in our Legal Basics course, a contract is only enforceable if there is ‘consideration’ (which means money or money’s worth) passing both ways.

So if you buy a Mars bar in a sweet shop,

• Your consideration is the money to pay for it.
• The shop owner’s consideration is the Mars bar.

That is then a legally enforceable contract for the sale of goods.

With a guarantee:

• The consideration provided by the landlord is the fact that they are prepared to rent to the tenant
• The consideration provided by the guarantor is that, if the property is rented to the tenant, they will pay any outstanding rent or other damage, if this is not paid by the tenant

However, if the guarantee is signed AFTER the tenant has signed up to the tenancy agreement or contract, no consideration is provided to the guarantor. The tenant is already signed up.  It is no longer conditional upon the guarantee being signed.

This will generally result in the guarantee being unenforceable – unless it is signed as a deed (which means being witnessed – see the FAQ here).

This is why we recommend that guarantees are signed as a deed always – as then this problem will not arise.

But assuming this is done, will the guarantee remain enforceable throughout the tenancy?  Probably not.

When guarantees become unenforceable

At the end of the fixed term

Many guarantors will assume that the guarantee will end at the end of the fixed term if the tenants stay on.  Most landlords assume the contrary!

It is a moot point whether a guarantee will end at the end of the fixed term or not.  Arguably, it does as the subsequent periodic tenancy is a new tenancy.

The Landlord Law guarantees overcome this problem by specifically stating that the guarantee will continue but giving the guarantors the right to end the guarantee after the fixed term has ended upon two months’ notice.

The two months notice period is so the landlord can serve a section 21 notice which they can withdraw if a new guarantee deed is signed.  However, if the government’s plan to make all tenancies periodic comes into force, this may no longer be appropriate.

What other reasons are there for guarantees to become invalid?

If the tenancy is no longer the same tenancy the guarantor agreed to guarantee

There are two main reasons why this might happen:

• If the rent goes up, or
• If the tenants or permitted occupiers change

If the guarantor agreed to guarantee a tenancy with a rent of £X they cannot be forced to guarantee a tenancy with a rent of £Y.  Unless maybe the new rent is lower.

Likewise, if the occupiers change, this again, will no longer be the same tenancy.  The new tenant may be someone the guarantor does not trust to pay the rent or keep the property in good condition. Likewise, if the landlord authorises a lodger, which the guarantor has not approved.

So in both these situations, and indeed if the tenancy changes in some other significant manner prejudicial to the interests of the guarantor, the landlord will need to get a new deed of guarantee signed by the guarantor.

What is the situation in Wales?

We have new legislation now in Wales, which came into effect automatically on 1 December 2022.  The effect of this was to insert new prescribed terms into the tenancy agreement – or, as we now need to call them in Wales, occupation contract.

So the tenancy or contract will no longer be the same one which the guarantor agreed to guarantee prior to 1 December 2022.

Does this mean that all guarantees which preceded 1 December 2022 need to be re-signed?

We are not entirely sure, but it is likely that they will, and it would be prudent for all Welsh landlords in this position to ask for guarantees to be signed again.

When you do this, you will also need to provide your guarantor with a copy of the new conversion contract statement, which needs to be served on all Welsh contract holders by 31 May, or the new contract if your tenants have signed up to a new agreement.

Landlord Law members will find the following resources on Landlord Law:

• English guarantee forms are on this page
• Welsh guarantee forms are on this page
• The Welsh conversion contracts page is here.