Guarantor refuses to be joint and sevaral. Any solution? Indemnity agreement?

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    Guarantor refuses to be joint and sevaral. Any solution? Indemnity agreement?

    I am trying to let a house to 4 students on a joint tenancy. I have sent guarantor forms to each parent which guarantee the same obligations as their particular son - joint and several. One guarantor is refusing to sign a document that may expose them theoretically to paying out because of the fault of one of the other joint tenants.

    The guarantor in question wants to amend the form to limit their liability to only their son. But I tried explaining that even if they do that, their son's liability is still joint and several.

    I can understand their reservation but how can this be solved? If I don't give in to their demand I may not let the property at all due to the local surplus and there is only a few weeks of term time left.

    What can I do?

    If I let one guarantor change their form (which may invalidate it altogether) and the others do not, could the others assume that all guarantors were equal and then claim later the guarantee is unfair as they signed it assuming equal risk with the other guarantors?

    If that is not a problem then I should just let her change hers and hope the remaining guarantees are OK.

    I don't see how you can have a joint and several tenancy with individual guarantors. Is there any way round this? It could be noted that the maximum liability of each guarantor is 1/4 of the total rent but they could still pay out up to that limit even if their own son paid his share and what if they do something causing a liability greater than 1/4 rent? From an ethical point of view I would always go for the most appropriate person where possible but this is no reassurance for a worried parent.

    I suggested that the tenants/guarantors can agree to indemnify each other according to agreed responsibilities should one guarantor be sued for another tenants rent, etc. But she said she didn't have time for that!

    My suggested indemnity agreement would say the house is let to ABCD and the guarantors are PQRS. ABCD agree to pay 1/4 rent each and pay for damages/costs due to their individual act/omission. If L claims money from P as a result of breach of this agreement by B then then BQ are liable to reimburse P of any costs claimed by L... If it's C's fault then CR, etc (and so on for each combination)

    It's long winded and the guarantors are likely to think "why should it be left to me have to claim money back from the other guarantors" but at least they have some legal comeback if they have to pay out due to someone else.

    Please help as I am getting very stressed over this falling through. If you think the indemnity form idea is good then perhaps we should draft one and put it on this site?

    #2
    I can certainly understand where the guarantor is coming from.

    You have 2 choices, refuse to grant the tenancy until all tenants have a suitable guarantor; or
    Get your guarantee re-written to a fairer version that limits the guarantors liability. This has been discussed on here before, I believe Mind_the_Gap is the expert, but the guarantee would include a limit along the lines of:
    The guarantors rent liability is limited to X% of the rent less any amount already paid by Mr A.

    So, the rent is £1000 and there are 4 tenants. Tenants A, B & C each pay £250 and tenant D doesn't pay.

    Tenant A's guarantor has a limit of £250 (25% of rent) less £250 (what 'A' has paid) so no liability
    Tenant D's guarantor has a limit of £250 (25% of rent) less £0 (what 'D' has paid) so has a liability of £250.

    Comment


      #3
      Try this on for size:


      THIS DOCUMENT IMPOSES POTENTIALLY ONEROUS OBLIGATIONS. YOU ARE ADVISED TO TAKE LEGAL ADVICE BEFORE SIGNING IT.

      A Deed of Guarantee dated [leave space for date to be written in] 2012

      1. Parties

      1.1 The Guarantor: [insert name and address of guarantor]

      1.2 The Landlord: [insert name and address of landlord]

      2. Definitions and Interpretation

      In this deed:

      2.1 “the Tenants” means [insert names of all the tenants]

      2.2 “the Nominated Tenant” means [insert name of the tenant whose obligations the guarantor is guaranteeing]

      2.3 “the Agreement” means an agreement dated the same day as this deed and completed immediately before it made between the Landlord (1) and the Tenants (2) relating to [insert address of property]

      2.4 “the Rent” means the rent reserved by the Tenancy Agreement

      2.5 “the Tenants' Obligations” means the obligations imposed on the Tenants by the Tenancy Agreement

      2.6 “damages” includes any liabilities, awards of damages, losses, compensation, penalties, costs, disbursements and expenses resulting from any claim, demand, actions or proceedings

      2.7 “the Relevant Proportion of damages” means such proportion of damages arising from any breach of the Tenants' Obligations as it is equitable the Nominated Tenant should pay having regard to the extent of his/her responsibility disregarding the joint and several liability of the Nominated Tenant under the Tenancy Agreement

      2.8 “the Guarantee” means the guarantee given by clause 4

      2.9 Where a party consists of more than one person any covenant given is given jointly and severally

      3. Background

      The Tenancy Agreement was entered into on the basis that the Guarantor would guarantee the payment of the Rent and the performance of the Tenant's Obligations but limited as provided in clause 5.2

      4.Guarantee

      The Guarantor covenants with the Landlord that the Tenants will pay the Rent and observe and perform the Tenants' Obligations and if the Tenants fail to do so the Guarantor will pay the Rent and observe the Tenants' Covenants in respect of which the Tenants are in default and make good to the landlord on demand and indemnify the Landlord against all damages arising from such non-payment non-observance or non-performance

      5. Extent of Guarantee

      The Guarantor and the Landlord agree as follows:

      5.1 The Guarantee continues even if:

      5.1.1 the terms of the Tenancy Agreement are varied so long as they are not varied in any way which materially prejudices the Guarantor

      5.1.2 the Nominated Tenant does not continue with his/her course of study at [insert name of uni] for whatever reason

      5.1.3 the Landlord grants any time or indulgence to the Tenants by neglecting or forbearing to enforce payment of the Rent or observance and performance of the Tenants' Obligations

      5.2 As between the Guarantor and the Landlord (that is to say for the purposes of this deed only and so as not to prejudice the right of the Landlord to claim against the Nominated Tenant on the basis that each of the Tenants is jointly and severally liable to pay the Rent and observe and perform the Tenants' Obligations)

      5.2.1 the Rent shall be deemed to have been paid if and so long as the Nominated Tenant pays to the Landlord one [insert relevant fraction e.g. if there are five tenants 'fifth'] of the Rent from time to time due; and,

      5.2.2 the Relevant Proportion of damages shall be deemed to have been paid if and so long as the Nominated Tenant pays to the Landlord the Relevant Proportion of damages from time to time due.

      6. Acknowledgement

      6.1 The Guarantor acknowledges that he has been afforded sufficient opportunity to read the Tenancy Agreement or a draft of it before executing this deed.

      6.2 The Landlord warrants that the Tenancy Agreement is in substantially the same form as any draft of it supplied to the Guarantor and to the extent that it is not the changes were drawn to the Guarantor's attention in writing before the Guarantor executed this deed.

      7. Deed

      This instrument is executed by the parties as a deed.

      [To be printed in duplicate one copy to have at the end:]

      Signed as a deed by
      [insert name of guarantor]
      in the presence of:

      [and the other]

      Witness signature
      Witness name
      Witness address

      Signed as a deed by
      [insert name of landlord]
      in the presence of:

      Witness signature
      Witness name
      Witness address


      [Each party should sign opposite the "signed as a deed" wording in the presence of an independent witness who should sign and write his or her name and address underneath the "signed as a deed" wording]

      When completed, the copy signed by the landlord should be sent to the guarantor and the copy signed by the guarantor retained by the landlord.




      ***

      If the above proves useful I politely request you make a contribution to a cancer charity.

      N.B. For the record and for the avoidance of doubt there is no relationship of lawyer and client between us and I owe you no duty of care. You use the form entirely at your own risk. For full professional advice backed by indemnity insurance consult a solicitor or a licensed conveyancer.

      Comment


        #4
        Thank you for the deed. It does make things fairer for G and they should have no objection to it. However, it must be executed as a deed which requires a witness which is another obstacle.

        If the other 3 forms come back without alteration I don't want to hold things up by starting again.

        Will an altered form from the 4th person invalidate the others if they make assumptions about there being 4 equal guarantors?


        (I have not given any express indication that 4 equal guarantees must be provided.)

        I am inclined to just accept whatever limited guarantees are offered and get the deal closed before they back out as having tenants is a greater priority at this point.

        I will save your suggested deed for next time and make a donation :-)

        Regards
        Last edited by bureaucrazy; 03-05-2012, 20:30 PM. Reason: too long

        Comment


          #5
          Will an altered form from the 4th person invalidate the others if they make assumptions about there being 4 equal guarantors?

          Possibly. The thing is that their assumptions would be incorrect in any event. Indeed, one wonders if guarantees for student lettings can be impugned because parents assume they are only responsible for their own child's obligations.

          Comment


            #6
            I think on this occasion I am inclined to just accept the mother's stance and get on with it.

            In reference to your point above, my forms are very explicit and honest listing all 4 names and explaining joint and several liability. The guarantor told me that previous guarantor forms she got from agents only had her sons name on it. I have seen such forms and it looks far less scary to the person signing but in reality, if their own son's liability is joint, then so is the guarantee. The only other option is the form suggested above which stipulates the limits for each guarantor. I think it is a good compromise but still leaves L out of pocket if he can't find a specific G or L has to chase after multiple people when one would do.

            My perspective on this whole issue is that strictly speaking, the group of tenants are really just one entity who agree to rent one property with one set of obligations. It is none of my business how they decide to organise that between themselves. They may chose to pay a quarter each or any other combination If one person breaks something, how do I know who dunnit? They must take responsibility amongst themselves so that the correct person pays for the repair. They must all reach an agreement as to how they are to fulfill their tenancy obligations together and that is a matter between them. They must trust one another and respect fairness amongst each other. One tenant should not agree to pay a quarter and then expect another to pay his quarter. I really think it would be useful if joint tenants could make a contract between themselves on their obligations and responsibilities to one another in their performance of the tenancy. Then they would have the ability to recover sums claimed by L from one another where appropriate. I will have a go at drafting something for that purpose and post it to see what you think of the idea. Maybe in future I can get my paperwork sorted out professionally to avoid these issues.

            Comment


              #7
              The problem with joint student tenancies is that in many university cities, first year students are pressured to sign up for accommodation for their second year as early as October or November, just weeks after they have begun their course and before they have time to get to know other people (ie their future joint tenants) very well at all.

              They are put under pressure to do this by letting agents, who set about orchestrating general panic round about the middle of October, making the students think that if they don't 'bag a house, quick', they will end up on a park bench the following year. To the universities' credit, many of them have taken action to try to persuade first years to resist this pressure until at least Christmas, so they have more time to make a rational decision about about where they want to live and with whom.

              Even so, they are put in the position where they will be sharing a house/flat with up to 6 others whom they cannot possibly know particularly well (unless they knew them pre-university). It is hardly surprising if their parents balk at the prospect of guaranteeing the debts of strangers' offspring as well as those of their own child. As a parent of students, I certainly wasn't happy to.

              As a LL, I always use the Deed (above) produced by Lawcruncher and I always take the time to explain to parents the difference it makes. It is a fair and excellent document for which I am annually grateful!
              'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

              Comment


                #8
                Originally posted by mind the gap View Post
                The problem with joint student tenancies is that in many university cities, first year students are pressured to sign up for accommodation for their second year as early as October or November, just weeks after they have begun their course and before they have time to get to know other people (ie their future joint tenants) very well at all.
                That's shocking MTG. I packed up my polytechnic course at Christmas of the first year. I was shocked that I had to repay around £100 of my grant because the council told me part of the grant was to keep me going during the holidays.

                I dread to think that if I were doing this today I might have been conned into signing a tenancy agreement for the next year by then.

                Comment


                  #9
                  Originally posted by mind the gap View Post
                  They are put under pressure to do this by letting agents, who set about orchestrating general panic round about the middle of October, making the students think that if they don't 'bag a house, quick', they will end up on a park bench the following year. To the universities' credit, many of them have taken action to try to persuade first years to resist this pressure until at least Christmas, so they have more time to make a rational decision about about where they want to live and with whom.
                  I call BS on this one - the rush is caused by the tenants looking, not by agents pushing them.

                  As an agent dealing mostly in student property I would love the search period to start in January, February or March. As it is, not long after we get the students moved in we are starting the whole process again. I really do not want to do this, but have to as we get inundated with enquiries. If we do not service them and get them round the houses, we will end up in January/Feb/Mar with no demand and lots of unlet stock.
                  Liability statement. My liability to you is not to exceed the amount you are paying for my recommendations or advice.

                  I see a bright new future, where chickens can cross the road with no fear of having their motives questioned

                  Comment


                    #10
                    Our guarantors are for a liability equal to the share of the rent if the rent was divided equally by the number of tenants. This limits each guarantors liability to one persons rent.

                    Their liability for damages is joint and several.

                    We introduced this due to the difficulties in getting several hundred guarantors per year (during a two or three month period) to agree to a J&S guarantor agreement.

                    Some will argue (and have done) that there is no such term in law as a share of rent, however we have been to court and gained a judgement against defaulting tenants and guarantors - the paperwork stood up on these occasions (of course nothing to say they will always be seen as valid, or a particularly good solicitor will not find a hole somewhere).
                    Liability statement. My liability to you is not to exceed the amount you are paying for my recommendations or advice.

                    I see a bright new future, where chickens can cross the road with no fear of having their motives questioned

                    Comment


                      #11
                      Originally posted by Wickerman View Post
                      Our guarantors are for a liability equal to the share of the rent if the rent was divided equally by the number of tenants. This limits each guarantors liability to one persons rent.

                      Their liability for damages is joint and several.

                      We introduced this due to the difficulties in getting several hundred guarantors per year (during a two or three month period) to agree to a J&S guarantor agreement.

                      Some will argue (and have done) that there is no such term in law as a share of rent, however we have been to court and gained a judgement against defaulting tenants and guarantors - the paperwork stood up on these occasions (of course nothing to say they will always be seen as valid, or a particularly good solicitor will not find a hole somewhere).
                      Making each guarantor liable for a share of the rent is precisely that. It means that guarantor of any tenant will be liable to pay any shortfall up to that amount, no matter who fails to pay his "share".

                      Comment


                        #12
                        Thats how it reads. I'll have to double check our agreement! We never chase a guarantor for the share of the rent for another tenant and make this clear to them.

                        We have advocated taking all tenants to court while in situ if a large non-payment happens (eg more than one tenant decides not to pay). Typically that sorts them out due to peer pressure.
                        Liability statement. My liability to you is not to exceed the amount you are paying for my recommendations or advice.

                        I see a bright new future, where chickens can cross the road with no fear of having their motives questioned

                        Comment


                          #13
                          Originally posted by Wickerman View Post
                          I call BS on this one - the rush is caused by the tenants looking, not by agents pushing them.
                          I disagree. The students have only just moved into their first year's accommodation and are too busy working out how to survive University life generally, to think more than a week ahead. Why on earth should they choose to start rushing round sorting out a house for twelve months hence? Some cities are worse than others, but as soon as the agents start putting up banners in October saying 'New lists for student lets available now!' it is unsurprising that this generates demand. Chicken...egg!

                          It won't change until all the agents in a particular city agree not to advertise student properties until at least January and I can't see that happening.
                          'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

                          Comment


                            #14
                            If I use lawcruncher's most attractive text (and make the suggested donation), who is responsible for determining the "Relevant Proportion of damages" ? Is it (by implication or otherwise) the landlord? Or is it up to the individual nominated tenants and their individual guarantors?

                            Comment


                              #15
                              Originally posted by Nicholas03 View Post
                              If I use lawcruncher's most attractive text (and make the suggested donation), who is responsible for determining the "Relevant Proportion of damages" ? Is it (by implication or otherwise) the landlord? Or is it up to the individual nominated tenants and their individual guarantors?
                              Who determines the proportions is deliberately left unsaid which, apart form anything else, avoids any possibility of including a provision which may be deemed to be unfair. It would clearly not be right to specify the landlord and even less the tenant. If we start to bring in third parties we are in danger of doubling the length of the document. By referring to such proportion as is equitable the matter is left to the court. We also need to bear in mind that when it comes to legal drafting it is a question of horses for courses. This draft is aimed at student lettings. Whilst I am sure there are exceptions, on the whole students do not wreck places. (They may leave them looking as if they are wrecked, but once you have cleared away the pizza cartons and had Mrs Mop in, they are fit to be let again.) If serious damage is caused it is likely to have been cause by one of the tenants, not all of them.

                              Comment

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