Rent Guarantee

What is the most effective way to set up a rent guarantee,
either within your lease agreements or as an additional agreement?

There are various legal forms or agreements a landlord can use to protect himself against unpaid rent, unpaid utilities or breach of agreement.

The landlord can implement a combination of the methods suggested here to effect his rent guarantee and protect his property investment.

Co-signing of the Lease Agreement

Quite often a young tenant or student may not have sufficient income or credit history to qualify for a lease. A guarantor such as a family member or an employer can then co-sign the lease agreement and offer a rent guarantee to the landlord.

Make sure that you can get in touch with the co-signer at any time to collect unpaid money. You may even consider more than one co-signer as added security. All signatories should have a copy of the lease agreement.

If more than one adult person will be occupying the premises, they should all be named as tenants and all of them should sign the lease agreement, even in the case of married couples.

This type of property agreement must have a Joint and Several Tenancy clause. This means that any one tenant is legally responsible for the entire rent, in the event of the other(s) not paying. You can also terminate tenancy for all the tenants if there is serious violation of terms by any one tenant.

Take care to explain their obligations as to the rent guarantee and let them sign or initial this clause specifically.

Guarantor Agreement

This is a very simple (albeit separate) agreement where the guarantor undertakes to pay all monies due should the tenant fail to pay. Monies include rental, utilities, repairs and maintenance costs, damages, legal costs etc.

The agreement references the lease agreement signed with the tenant and remains valid through the term of the lease as well as any extensions thereof, unless the landlord issues a release in writing.

Even if the guarantor were to pass away, the agreement will still be binding upon his/her estate.

Follow the link for a free Guarantor Agreement Template.

Signing the Lease with the Rental Guarantor Directly

Another option is to enter into a lease agreement with the guarantor directly. The guarantor will complete the rental application form, qualify for the apartment and sign the lease agreement as the Lessee.

The following provision will then be added:

Name of person(s) other than the Lessee who will occupy the Premises. (Add relevant details and attach copies of identity documents.)

This type of agreement works well with corporate rentals, where they may even from time to time change the occupant of the apartment (with prior written approval by the landlord). It can also be used where the landlord enters into an agreement with the parents of a student.

The alternative is to have the standard lease agreement with the tenant or person occupying the premises and a separate Guarantor Agreement.

Increased Security Deposit as Rent Guarantee

A landlord can demand a higher security deposit up front from a marginal tenant, provided it does not exceed the limits applicable in his area.

Important: This is applicable after a tenant has been provisionally approved, subject to a higher deposit and must not be used in a discriminatory way at the rental application stage. A landlord may also ask for additional advance rental payments as permissible by law.

Payment of Utilities

This is a tricky one! Be very careful and make sure you know what is allowed in your state or country!

Cutting off any of the utilities (water, electricity, gas, heat etc.) may require a court order first, so proceed with caution.

As protection against non-payment of utilities, the landlord may consider registering the utilities in his own name. The tenant will then be invoiced separately for usage of gas, electricity, water etc. (You must be able to prove usage with individual meters).

You may then be legally entitled to add the following clause to your agreement:

Should the tenant be in default with rent payment the landlord shall not be obligated to sell the tenant electricity.

Rental Insurance

A landlord's first step to protect himself is to do proper tenant screening and to have a comprehensive agreement in place. But even model tenants may find themselves in a position where they are unable to pay the rent due to changes in employment e.g. redundancy, breakdown of relationships or lengthy sickness.

However, many property owners rely on rental income to cover the interest on the bond and cannot afford to be out of pocket for a mortgage. A variety of rent guarantee insurance products are available to protect against unpaid rent and/or to cover legal expenses associated with eviction.

Note: Because laws can vary greatly in different countries or states, it is always advisable to seek legal counsel to assist you and to review your implementation of our free real estate contract forms.

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