Rental guarantor

MacPingu1986

RHemmings said:

There were other suggestions above which you seem to have ignored, or seem to assume that they will result in the extreme of the guarantee being worthless. E.g. that a guarantor could have a notice period, and that the landlord has to minimise their losses should (e.g.) they decide to evict the tenant and the tenant not move until the bailiffs are there and leave damage etc.

There are plenty of ways that guarantor agreements can be improved to still give landlords reasonable protection, while not having the current situation of a guarantor being stuck forever with no control over what happens. 

Firstly, guarantee agreements could be effective for a maximum length of five years from the time of signing. So that if a guarantee agreement is to run longer than that, then a new agreement could be signed. E.g. I landlord may decide to negotiate an extension four years six months in to an existing agreement so that if agreement is not reached there is still a reasonable length of time for the landlord to act. That allows for extended periods of protection for the landlord, while not tying the guarantor in forever.  Of course the guarantee would also end if the tenancy ends. 

Secondly there is the problem of the guarantor being tied into rent increases with no direct control over that. It should be possible for a guarantor to challenge a rent increase via tribunal. (I'm assuming this is not possible now). And/or it could be that the guarantor's liability for rent (note: not just the rent itself) could be limited to the original rent + RPI increases. Note: that wouldn't prevent a higher rent being charged. Just that in the case of above RPI increases, the guarantor's liability would no longer cover all of the rent.

Thirdly, it could be made compulsory for a landlord using a guarantor to take out rent guarantee insurance should the guarantor offer to pay for this as part of the guarantee. Like other things in the property market, the insurance cost could be challenged should the amount not be reasonable, e.g. it could be normal that three quotes are provided and agreed. Personally I think making rent guarantee insurance compulsory could lead to some problems if the quotes provided by providers are too high because they consider the tenant too much of a risk. (Which I think plausible in some circumstances where there is a guarantor.) 

Fourthly, there could be a maximum period of time that the landlord could require the guarantor to cover the rent for. E.g. one year. This means that should the landlord not receive rent from the tenant, they have to act to end the tenancy within that time or the guarantor will no longer be liable. I think that one year is a suitable time span for this.

I'm willing to bet that rent guarantee insurance providers won't be stuck into paying out forever should a tenant no longer be able to pay the rent. I bet there are terms and conditions that could inform working out how to limit guarantor liability could work. In all stages of things going wrong. 

Note: I'm not a lawyer nor a lawmaker but just a random person on a forum. I believe that the above is a reasonable first draft towards something workable, and I believe heading in the direction of something better than the current situation. I would hope that real lawyers and lawmakers should be able to come up with something far better. 

Aside from a right to take rent increases to a rent tribunal, all of the things you've mentioned can already be freely negotiated into a guarantee by the guarantor before they sign. 

Alternately they could sign their own back to back agreement with the tenant directly, where the tenant in turn has to cover any monies paid out by the guarantor under the guarantee.

RHemmings

Grumpy_chap said:

RHemmings said:

Firstly, guarantee agreements could be effective for a maximum length of five years from the time of signing. 

That would result in the LL commencing S21 eviction proceedings at 36 months, so that the eviction process is concluded and the T gone before 5 years arrives.

I had a look around to see if I could find other reports of evictions taking two years at the moment. I didn't. Do you have references to back this up? In any case, if evictions are taking two years then that would be an independent problem that needs to be fixed. 

Grumpy_chap said:

RHemmings said:

Secondly there is the problem of the guarantor being tied into rent increases with no direct control over that. It should be possible for a guarantor to challenge a rent increase via tribunal. 

One assumes the G knows the T.  The T can advise the G if there is a change to the rent and the T has rights to challenge the increase via tribunal.  
Given current contract law, where the G is not a party, any action such as tribunal challenge has to be in the name of T.  This is not unusual - consider car insurance where the insurer does everything but any actual legal case has to be in the name of the insured.  The G is, effectively, the insurer for the T.

I'm suggesting that this would be changed so that the guarantor can challenge the increase via tribunal as well. My suggestions are for a new model of how things would work, not what the currently the situation at the moment. 

Grumpy_chap said:

RHemmings said:

Thirdly, it could be made compulsory for a landlord using a guarantor to take out rent guarantee insurance 

Rent guarantee insurance won't accept Tenants that require a Guarantor.
I do agree that rent guarantee insurance is a better approach and is the way I cover risk.
Having rent guarantee insurance PLUS a Guarantor would be double cover and giving the LL a double bite at the cherry if things went wrong. 

Rent guarantee insurance will cover tenants where the rent is (e.g. for one provider) no more than 40% of the tenant's income. That would certainly not be all such tenants, but would cover some. (And I specifically said that in some cases premiums may be too high.)

I see nothing wrong with the landlord having a guarantor to fall back on should the rent guarantee insurance not pay out. That was my intention, and the reason that it would be compulsory should the guarantor offer to pay for it.

Grumpy_chap said:

RHemmings said:

Fourthly, there could be a maximum period of time that the landlord could require the guarantor to cover the rent for. E.g. one year. This means that should the landlord not receive rent from the tenant, they have to act to end the tenancy within that time or the guarantor will no longer be liable. I think that one year is a suitable time span for this.

You might think.
Current eviction process are taking two years to go through the courts - hence, why I said at (1) above that LL would commence eviction at 36 months based upon the five-year timeframe suggested.
The practical outcome of the above would be that Tenants find the security of tenure reduced.  They would start a tenancy and on the second day would be served notice to commence the ball rolling on eviction.  Except S21 cannot be issued within the initial fixed term (usually 1 year) or the first 4 months, so that would all crash into a big mess of conflicting timelines and leave the LL with a long period after the first year when the Guarantor is in place, but the LL has no Guarantorship.  
I think the practical effect of this would be to negate the Guarantor process entirely and LLs would only rent to those that are good credit risks in the first place.  
A sub-prime market of rent at massively inflated prices for the less financially secure would grow.  I don't think that would be a good thing.
  

If court cases are taking two years to go through the courts then this is a separate problem that needs to be solved separately. As above, can you show me that this is a common length of time for an eviction to take at the moment?  Because everything I saw when I looked around said: not. 

A S21 cannot be issued during the fixed term, but a S8 can be. And, there would be no reason to evict if rent is being paid, tenant is not being antisocial, etc. S21 could be used (or its replacement) nearer the end of the guarantee after the end of the fixed term. I don't accept that this would be after three years in the case of five year guarantees. 

With five year guarantees, and the need for two months arrears before a S8 can be issued, I don't think that any tenants will move in and be serviced notice immediately. Not unless they immediately stop paying the rent in which case they should be evicted. Not a problem. 

I also think that the degree of protection offered to landlords by my suggestions are reasonable. 

Personally I think that your counters to my suggestions are rather weak, and to be honest if you have to go this far to try and gainsay them then in my eyes that's support for them.