Tenancy Guarantees

Collapse
This is a sticky topic.
X
X
  • Filter
  • Time
  • Show
Clear All
new posts

    Tenancy Guarantees

    I have collected together almost everything I have said on guarantees. It has come to 11 pages of text which is going to take a bit of editing for which I find I have little enthusiasm, at least at the moment. In the meantime I set out below everything I have collected. There is some repetition - but some points bear repetition! Also, the words quoted from posts by others are not highlighted, but I think it is clear where I am answering questions or making a comment.

    **

    There is a proposed form of guarantee with comments on it here: http://www.landlordzone.co.uk/forums...for-discussion.

    **

    there is another proposed form for student tenancies here: http://www.landlordzone.co.uk/forums...p/t-46836.html

    **

    All of what follows may not necessarily be the case, but if you are a landlord it is wise to assume it is the case.

    First choose your guarantor carefully. Obviously you satisfy yourself that your guarantor is good for the money. Remember that a guarantor derives no benefit from the tenancy. On the whole, the law allows a person to make an unwise choice, but not an uninformed one. It is important that the court believes the guarantor understood fully what s/he was letting her/himself in for. So not only do you choose the right sort of person (professional or business people are to be preferred to the unmarried daughters of vicars) but you make sure they are given appropriate warnings; something like the following in red, bold or capitals (and preferably all three) at the top of the guarantee:

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

    Ideally the guarantor should actually take legal advice and the guarantee should be witnessed by a lawyer who confirms that the terms of the guarantee have been explained.

    If legal advice is not taken, a document that is long and/or confusing and/or onerous and/or tries to cover all the angles will tend to lead the court to believe that the guarantor did not understand the document. Best to keep it short, clear, limited as to time and/or amount and free from provisions that cover remote contingencies. (It goes without saying that the tenancy agreement itself should be well-drafted.) Precedents designed for commercial premises at a high rent are not likely to be suitable - the phrase "horses for courses" springs to mind.

    As I have been known to say, legal drafting is trickier than people think. For example, if you try to make the guarantor liable after the fixed term has expired you may use words like "extension" and "continuation" incorrectly and get in a tangle. If you take on the responsibility for drafting a legal document you take on the responsibility for getting it right. Whilst the court may generally assume that when a lawyer drafts a document s/he means what s/he says, but take a lenient view of layman's language in legal documents, they are less inclined to be tolerant of bad drafting of guarantees.

    A separate document executed as a deed is to be preferred so long as you make it clear exactly what is being guaranteed and do not complete the deed before you complete the agreement. If you join the guarantor in the agreement and make it a deed it may have unintended consequences. For a start you may find you have actually created a tenancy before the tenant goes into occupation. Apart from that, if you make a statement in a deed you are estopped from denying its truth - some of the precedents I have seen make all sorts of statements they ought not to be making.

    **

    In any case where someone unused to legal documents agrees to guarantee an arrangement from which they derive no benefit, the court will want to look at the circumstances surrounding the signing of the guarantee. Was pressure put on the guarantor? Was the full effect of the guarantee explained and by whom? Was the guarantor recommended to seek legal advice? This form is so onerous that one could almost argue that no one who understood it would sign it, and therefore that anyone who did sign it cannot have understood it.


    **

    All lawyers know that a deed does not need a consideration. However, there is a feeling that a deed expressed to be made without a consideration is bit like breakfast without marmalade. Deeds of gift are regularly expressed to be made "in consideration of the love and affection which X has for Y". In fact such a consideration as well as "in consideration of the tenant having entered into an agreement" and the like are not valid considerations anyway. The inclusion of such unnecessary wording (as well indeed as the inclusion of a valid consideration such as one pound) does not invalidate the deed.

    Whilst "deed" may often be contrasted with "agreement", the proper distinction is between a "deed" and a "simple contract" or "agreement under hand" (as opposed to "under seal" - deeds used to need sealing). Accordingly any sort of agreement can be executed as a deed. The usual reasons for having a deed are:

    1. A lack of consideration. In some cases there may be doubt as to whether the consideration is adequate, illusory or past. A deed removes any doubt. Deeds are also usually used when varying a simple contract to save expressing some consideration. (Again, lawyers know that a nominal consideration would be sufficient, but prefer the absolute certainty of a deed.)

    2. To ensure that the obligations are enforceable for 12 rather than the usual 6 years years applicable under a simple contract.

    3. Because the law requires it.

    4. (Rarely) because a deed is an instrument in solemn form and any party to it is estopped from denying the truth of any assertion he has made in it.

    A deed is a matter of form rather than content.

    A deed guaranteeing a tenancy does not need to be signed by the landlord. If he wants to rely on it he is bound by any conditions in it which impose an obligation on him.

    **

    Is it true that a Deed of Guarantee has the added advantage of automatically making the Guarantor the primary obligator i.e. LL does not need to mitigate its loses? which is something that does not happen with the guarantor agreements?

    It is not true. What is important is the words used, not the form the document takes. It is best not to worry too much about issues such as whether the guarantor is deemed to be a primary obligor and what actions the landlord should take. If you start putting all these things in a guarantee you run the risk of making it longer and more complex and that is best avoided. The key has to be good estate management which has to involve giving the guarantor early warning of problems. Even if not required, it avoids the guarantor arguing the point.


    And, is it not necessary at the end of the Deed the words: "Signed and Delivered by the Guarantor as a deed"

    Although often seen, it is not a legal requirement.


    So, by signing a Deed of Guarantee a LL may inadvertently become bound by an unsuspected condition or obligation to the Guarantor. Would you not say that in order to keep things as free of potential complications as it might be possible that only the Guarantors signature should be in the Deed?


    The point is rather that a landlord is bound by the express terms of the Guarantee whether he signs or not. Accordingly, by signing he does not increase his obligations.

    When deciding who needs to execute a deed you have to distinguish between (a) the primary purpose of the deed and (b) the subsidiary matters. Execution is needed by whoever is giving effect to the primary purpose, but is not needed by the other party to give effect to the subsidiary matters*. For example:

    (a) A conveyance or transfer of land needs to be signed by the seller, but not by the buyer.

    (b) A lease needs to be signed by the landlord, but not by the tenant.

    (c) A mortgage needs to be signed by the borrower, but not by the lender.

    (d) A guarantee needs to be signed by the guarantor, but not by the person taking the benefit of the guarantee.

    Any of the above may contain conditions or obligations imposed on (as the case may be) the buyer, the tenant, the lender or the person taking the benefit of the guarantee. The law does not allow someone to take the benefit granted by a deed without at the same time being bound by the conditions and obligations the deed imposes on him. If he does not execute the deed the law proceeds as if he had**. To put it another way, if he is not bound because he as not executed the deed then he is bound if by his actions he accepts the deed. Acceptance does not have to be physical, but can be implied by actions. For example a tenant accepts a lease if he goes into possession or pays rent. A buyer accepts a conveyance if he pays the purchase price and a lender accepts a mortgage if he pays over the amount he is lending. In the case of a guarantee any doubt that a landlord has accepted it (and therefore bound by all its terms) is removed if the landlord sues on the guarantee.

    *More accurately, the law requires execution by the other party but equity does not because **Equity regards as done that which ought to be done.

    (There may be exceptions to the above, but they need not detain us.)

    #2
    If a Guarantor Delivers to a LL a Deed of Guarantee that he drafted himself then no court is going to release the guarantor of his obligations under the excuse that the guarantor did not understand what he himself wrote and signed.

    No doubt about that.


    The question is whether in the case where the LL provides the guarantor with the Deed of guarantee to be signed by the Guarantor, the basic requirement that a true Deed of guarantee is like an unconditional gift chosen in size colour and shape solely by the guarantor has been removed by the LL's action and if this in turn has legal consequences later on. I realize that by the LL warning the guarantor to take legal advice before signing the Deed is something that would help to portrait the LL as acting honourably it might not be sufficient to convince a court of law in all cases.

    On the other hand, I remember reading sometime ago, that when the Deed of guarantee is not drafted as an agreement by the LL but as a true Deed that only the Guarantor executes as a deed then the onerous unfairness of the Deed would not come later into question.

    You have hit on some of the difficulties involved in guarantees.

    Summarising what I have said elsewhere:

    (a) You need to choose your guarantor carefully and be satisfied there is no possibility of undue influence. This is not necessarily an easy task and up to a point has to involve common sense.

    (b) You need to be satisfied that the guarantor understands the full implications of what he is doing. In another context Lady Hale said, "As a very general proposition, consumer law in this country aims to give the consumer an informed choice rather than to protect the consumer from making an unwise choice." Ideally, the guarantee should be witnessed by a lawyer who certifies that he has explained the deed to the guarantor - though this does not rule out undue influence

    (c) You need to keep the guarantee short and to the point as this helps you with (b) where the guarantor has not taken legal advice.

    As a general proposition it is true to say that, as a solemn act, a deed can in some ways be considered "more binding" than a non-deed. However, where someone is providing security for another in a situation where he does not benefit from the arrangement, the court will want to look at everything and the possibility that all the careful precautions one has taken will come to nought cannot be ruled out.

    **

    Let’s consider the following scenario: A Deed of Guarantee is taken to a solicitor to have the Guarantor’s signature witnessed. The signed Deed is then sent either to the Tenant or to LA who will have the responsibility of dating the Deed immediately after but not a minute before the TA has been dated(completed).

    But, is that not a potential problem in waiting? I mean for a non duly authorized person “to deliver” or, better let’s say complete a blank in the Deed by inserting a date at the time when the LL gains possession of it ? Any well informed guarantor could challenge the validity of such Deed.

    I wonder if it would be legally valid to introduce a clause in the Deed that says something like: “ This Deed shall become effective on the {write date here…} immediately after and not before the TA has been completed". On the other hand I have Heard that once a Deed has been signed it must be allowed to become effective straight away, otherwise the Deed becomes invalid. So I am not sure if there is a solution other than persuading the guarantor or paying his lawyer to attend the dating of the Deed on the same day when the last signatory of the TA executes it.

    The law is really very helpful here! It says that if two or more associated deeds are completed on the same day they are assumed to have been completed in the order necessary to give effect to the obvious intention of the parties. The law does not require, or indeed allow, any enquiry to be made as to what time each document was dated*.

    The law also makes a distinction between a deed being executed and a deed being completed. In many, if not most, contexts a deed will in fact be executed before the person executing wants it to take effect. The law allows this because it makes for practical convenience. Unless there is a clear intention that the deed should take effect on execution, it regards deeds as having been executed subject to one or more conditions being fulfilled. This happens all the time in conveyancing transactions. The seller will execute the transfer before the purchase price is paid. The property is not transferred to the buyer on execution of the transfer, but when the transaction is completed by the buyer paying the purchase price. Similarly, the buyer will execute a mortgage of the property before completion. It will not take effect until the transfer to him is completed. No court will say that a mortgage is invalid if it was executed before the transfer.

    Reading a legal textbook about deeds may make it all seem quite complex with its talk about "delivery" and "escrow", but the law is such that it works away quietly in the background to ensure that in practice problems rarely arise. The fine detail of the law rarely needs to be applied. However, if one starts to anticipate difficulties which are unlikely to arise one runs the risk of creating problems where none would have arisen.

    If a guarantor signs and returns a deed of guarantee leaving it undated (as he should) and it and the tenancy agreement are later both dated the same day there should be no problem.

    *For the record dating a deed is not strictly necessary, though in all cases is very highly recommended. There is also a presumption, difficult to rebut, that a deed was completed on the day it was dated.

    **

    The essence of my question is who is allowed to date the Deed if G is not there? Current practice is for LA to do it on the given date. Has LA the authority to fill the blank space (i.e. dating the Deed) ?

    Absent any stipulation to the contrary made by the guarantor, the LA has implied authority to date the deed on the day the deed is needed.


    So, could G sign and date Deed in advance? and insert a clause saying that Deed shall become effective once TA is completed on a certain date in the future?

    Not recommended as you then open yourself to the argument that the deed is void because it guaranteed an obligation which did not exist at the time the deed was completed. Whether the argument would succeed is open to question, but you do not want to get into the argument.


    And, is it then not necessary to say in the Deed that it was signed immediately after the TA was completes as some Deeds say?

    That is very much belt and braces and lawyers love belt and braces backed by insurance if possible! However, it is not necessary because the law will assume that the guarantee is completed immediately after the tenancy agreement if for no other reason than assuming it was completed before makes no sense.

    My message here (and it applies to all aspects of BTL) is:

    Keeps things simple. Over-elaboration to cover all the angles may end up creating a problem which would not have arisen if you had not over-elaborated


    **

    The validity of a guarantee does not depend on its being signed by the landlord.

    Strictly, no address is needed. Even so, inserting a party's actual address at the time the document is executed is best.

    If the guarantee is in a standard form, each guarantor will guarantee the whole rent. That runs the risk of a guarantor arguing that he was not aware of the extent of his liability and a court agreeing.


    **

    The guarantor signing in the presence of the landlord or agent allows the argument that the guarantor was browbeaten into signing or was told not to worry because it is all just routine.


    **

    On the whole, in non-commercial situations particularly, the courts like to look very carefully at guarantees, starting with the assumption that the guarantor has been stitched up. So, if the court suspects that the guarantor was misinformed about the limit of his liability; if he was not encouraged to take legal advice; if the terms of the contract change after the guarantee was given; then the guarantee may be voided. Also, if there are two guarantors and one is released without the consent of the other, then I think that will void the guarantee. If I am right, then I think it has to follow that if a guarantor signs believing there will be other guarantors, but there are not, then the guarantee he has given is voided.

    Comment


      #3
      1. If a guarantee is made as a simple contract rather than as a deed, consideration must be given. Is such a guarantee contract valid where the consideration is the granting of the tenancy to the son/daughter of the guarantor? Here the guarantor does not directly benefit only their child does, so is it a valid contract?

      I think that there has to be doubt about whether that is sufficient consideration. However, the sum of one pound paid by the landlord to the guarantor is sufficient even though only nominal.

      2. If consideration is the tenancy being granted only if T provides a guarantor, then it follows that the guarantee must be provided before the tenancy agreement is signed. Why and how do some agents sign tenancy agreements and then give 14 days for guarantor forms to be completed afterwards, with G only having sight of the AST after it has been signed? These agents then say that no keys will be given until guarantors are provided and reserve the right to revoke the tenancy agreement. Surely they cannot revoke it and it is hard to argue that consideration has been given if the AST is signed first (even on the basis that T promises to get a G)?

      Many agents get the procedure wrong. The correct procedure is to collect all documents required executed as appropriate and then date them all the same day. The law assumes that they were completed in the order necessary to give them effect. If you have a contract for a tenancy you can if you wish make it conditional on a guarantee being executed within a specified period, but that is an unnecessary complication. What you cannot do is make the tenancy itself revocable if the guarantee is not given.

      3. If the guarantee is made as a deed, then no consideration is needed. Am I right in saying that the guarantor deed can be made after the AST is signed and is still valid? Is it possible to put a clause in the AST allowing L to revoke it if guarantors are not provided within X days? If not and G backs out, what can be done?

      In practice the guarantee does need to be completed after the tenancy agreement is completed because of the difficulty in guaranteeing something which does not exist. As mentioned, a conditional tenancy (as opposed to a conditional agreement for a tenancy) is an impossibility, but if the proper procedure is followed there does not have to be a problem.

      In this example, why does the landlord need to sign it as well as the guarantor?

      Because the landlord is agreeing to things and giving a warranty. In fact, if the landlord accepts the guarantee he will be bound by its terms whether he executes it or not, but the landlord executing it is best practice.

      For 'delivery' is normal post sufficient to be considered formal 'delivery' or should recorded or some other means be used for full validity as a deed?

      "Delivery" here is a technical term. Actually taking steps to ensure the other party has physical control of the deed is not required. Delivery can be constructive, as where the transaction is completed by an agent - it happens every day in lawyers' office when people buy property.

      What other advantages are there in making it as a deed?

      In the case of guarantees it removes any argument that the agreement fails for want of any or sufficient consideration. A deed is a solemn act and a party cannot deny the truth of any statement he has made in it. That means you need to be a bit wary of using deeds where they are not required. It must though be borne in mind that guarantees are a bit of a special case and, whether executed as deeds or not, are liable to be set aside if there is any doubt as to whether it was properly procured.

      I read somewhere that there are offences connected with making a deed if you are not legally qualified. Could L be asked to prove who authored the deed?

      An otherwise valid deed cannot be challenged on the grounds that the person who prepared it had no authority to do so.

      **

      Compared to many other jurisdictions where notarisation is necessary, the execution of deeds in England and Wales is very informal. The snag with a guarantor signing with either landlord or agent present is that the circumstances surrounding the execution of the document are open to question. The snag with sending the document to the guarantor is that you cannot be certain of his identity if the document is witnessed by a non-lawyer.

      **

      Does a guarantee need to be a deed?

      Section IV of the Statute of Frauds (1677) as amended reads as follows:

      Noe Action shall be brought whereby to charge the Defendant upon any speciall promise to answere for the debt default or miscarriages of another person unlesse the Agreement upon which such Action shall be brought or some Memorandum or Note thereof shall be in Writeing and signed by the partie to be charged therewith or some other person thereunto by him lawfully authorized.

      So at least one thing is clear: a guarantee needs to be in writing. I shall leave consideration of what constitutes “writing” for another day.

      But does it need to be a deed?

      So far as I am aware there is no case on the point.

      The argument for a deed is that a promise made without consideration needs to be made by deed. “Consideration” here has a technical meaning as to which see http://en.wikipedia.org/wiki/Conside...in_English_law It will be noted that a nominal consideration is sufficient. It would seem therefore that a guarantee given “In consideration of the sum of one pound paid by the Landlord to the Guarantor” obviates the need for a deed.

      The argument that a deed is not required if there is no consideration simply points to the wording of the Act and insists that the sole requirement is that the guarantee is in writing. A further argument is that, it being shown that the guarantor had the intention to be bound and that the landlord granted the tenancy relying on the guarantee, the guarantor ought not to be let off the hook on a technicality. “Equity regards as done that which ought to have been done.”

      Whatever the position may be, a landlord can avoid argument if he ensures the guarantee is executed as a deed. The snag is that where an agent is involved the agent cannot, without committing an offence, prepare a guarantee to be executed as a deed. However, the way round that would seem to be to draw up the guarantee expressing it to be made “In consideration of the sum of one pound paid by the Landlord to the Guarantor”.
      **

      Getting a lawyer to witness is a good idea, so long as you make sure you can check that the witness actually was a lawyer! If you draw up the attestation so that the firm's name and address is included you can call to check - but get the number from a directory or the firm's website.

      As to cost, you need to distinguish between:

      (a) witnessing only to involve establishing the identity of the guarantor;

      and

      (b) getting the lawyer to confirm he has advised the guarantor of the full effect of the guarantee, which will obviously more expensive.


      **


      Buying or obtaining a guarantee or any other legal document on line is risky. Even if the version you find is sound you cannot be sure if it will meet your requirements. Beyond that, it is important to get your procedures right. Ideally, every landlord should discuss his concerns and requirements with a specialist landlord and tenant lawyer and get him to draft all his documentation and set out how it should be dealt with. That is of course likely to be expensive and a landlord with only one property may be reluctant to incur the expense. However, the bottom line is that there is no point in having documents which do not do the job.

      **

      1. If you want to tie a guarantor up indefinitely you need to get the drafting right. If you get the drafting wrong the whole thing may fall apart so that you end up with no guarantee at all.

      2. Even if you get the drafting right the whole thing may fall apart leaving you with no guarantee at all if a court decides that the guarantor was misinformed as to, or failed fully to grasp, the obligations in the guarantee. The more onerous a guarantee the more likely the court is to think that the guarantor did not understand it. The way to look at it (even if it is not quite the case) is this: The courts take the view that no sensible person would guarantee an arrangement under which he derives no benefit. Accordingly, if someone does guarantee an arrangement under which he derives no benefit there is an assumption that he failed to understand the full implications of doing so. Accordingly there is an investigation to see if the assumption can be rebutted and it will be rebutted (absent any nasties like coercion or undue influence) if the court is satisfied that the guarantee was fully aware of what he was doing. As said above, the law allows a man to make an unwise decision, but not an uninformed one.


      **

      Whilst it may be the case that a court will not excuse someone from a contract simply because they did not read it - if they did everyone could plead that - that is not the same as saying that he is presumed to have understood it or its full effect whether he reads it or not or that he will be bound by any unfair term. If a guarantor consults a solicitor to advise and the solicitor certifies that he has given advice a landlord is entitled to rely on that. If the advice was negligent the guarantor will still be bound but have a claim against the solicitor. However, a solicitor's certificate does no more than what it says. Coercion or undue influence cannot be ruled out and that is why the guarantor needs to be chosen carefully.

      Where a solicitor is not involved it is important to keep things simple. Indeed "keep things simple" should be pinned on every landlord's and letting agent's lavatory door. Just go for the basics.

      Comment


        #4
        It is not a question of whether there is any consideration for the guarantee, but rather that when the courts look at guarantees generally they divide them into two categories: those where the guarantor expects to derives some material benefit and those under which he does not. A clear example of the former is a company director or major shareholder guaranteeing a contract made by a company. A clear example of the latter is an aunt guaranteeing a loan for her nephew to buy a fast car. The aunt may derive satisfaction from the thought that her nephew will be delighted to have the car, but she will derive no material benefit from it.

        If you guarantee a tenancy of a property which you will not live in you derive no material benefit from the tenancy. Even where there is no coercion or undue influence or other funny business, where a guarantor derives no benefit under the arrangement he is guaranteeing the court will want to be satisfied that he understood fully the implications of what he was doing. It will do so even if the terms of the guarantee are clear. It is possible for the same form of guarantee to have two different outcomes. An accountant signing a guarantee, at least a standard one, is likely to get short shrift if he says he did not understand fully the extent of his liability. Where the guarantor is a non-professional person the court will want to look at all the circumstances. The precise terms of the guarantee are only one factor, but the more onerous its terms the more the court is going to be inclined to conclude that the guarantor did not appreciate its terms if the advice of a lawyer was not sought. We are talking about understanding fully the nature of the transaction rather than any specific term.

        **

        The questions to be asked when looking to enforce a guarantee are:

        1. Is it a deed and, if not, is it made for a sufficient consideration? Making the guarantee a deed removes all doubt. The snag is that a letting agent cannot as part of the service he provides prepare a deed of any kind without committing an offence. An agreement under hand made in consideration of the sum of one pound paid by the landlord to the guarantor should prove to be sufficient consideration. In my view statements such as "In consideration of the guarantor having requested the landlord to grant the tenancy to the tenant" do not express sufficient consideration. Whether they do or not, there is no point taking the risk when a nominal consideration does the trick.

        2. Does the guarantee contain any unfair terms within the meaning of the Unfair Terms in Consumer Contract Regulations 1999? If a guarantee contains an unfair term that does not necessarily mean the whole guarantee is unenforceable. Regulation 8 (2): "The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term."

        3. Is the guarantee properly worded? What looks fine may not be fine. A guarantee will be construed strictly and against the landlord. Example: The guarantee provides that it will apply to any "continuation" of a fixed term. Whilst in the case of an assured tenancy a statutory periodic tenancy may often be thought of as a continuation of the fixed term, we have judicial authority confirming that it is a separate tenancy. The guarantee will not apply to the statutory periodic tenancy. If a guarantee is wrong the court will not rewrite it to make it right.

        4. What is the relationship between the guarantee and the tenant? It is important to rule out as far as possible that undue influence has been exercised to procure the guarantee. That is not easy. See the key passage from the House of Lords judgement in Barclays Bank plc v O’Brien quoted here: http://en.wikipedia.org/wiki/Barclay..._v_O'Brien

        5. Did the guarantor understand the full extent of the obligations he was undertaking? I quote Lady Hale from the OFT against the banks: "[C]onsumer law in this country aims to give the consumer an informed choice rather than to protect the consumer from making an unwise choice."

        6. Even if the guarantee is in due form and clearly drafted, does it come over as unduly onerous? There is no law against entering into onerous obligations. However, if the court is assessing whether the guarantor was fully aware of the obligations he was undertaking it is likely to be influenced by the terms of the guarantee. It may conclude that the more onerous the terms the less likely it is that the guarantor understood their full implication.

        7. What were the circumstances leading up to and attending the execution of the guarantee? Did the guarantor have sufficient time to consider the tenancy agreement and guarantee? Was the landlord or agent less than candid about the effect of the guarantee? Was the guarantor advised to take independent advice? Was independent advice taken? Was the guarantee signed in the presence of landlord or agent?

        I am not suggesting that any judge will look to see if he can find a way of letting a guarantor off the hook. A judge will bear in mind that most people who sign a guarantee have a basic idea of what a guarantee involves. Equally though, he will appreciate that, although a guarantor may understand that he may be called upon to pay something if the tenant defaults, he may not appreciate or have been misled as to, the full extent of his liability. If anyone thinks that the law tends to favour guarantors they are right. Whether it is right that it should is not relevant to advising landlords.

        **

        What I am trying to get over is that it is more than that. What is unfair in one guarantee is almost always going to be unfair in another. However, what is entirely possible is that a form of guarantee which is enforceable in one set of circumstances may be unenforceable in another. If I am coming across as suggesting that it is difficult to set up an enforceable guarantee it is because I do not want landlords to be complacent and think it is just a question of getting a nicely worded guarantee.

        **

        A well-drafted guarantee is like a crash helmet. If you wear the crash helmet on your head and go out on a bike the risk of a serious head injury if you fall off is significantly reduced. If you wear the helmet across your back it is not inevitable that you will sustain a serious head injury if you fall off, but the chances are higher than if the helmet is on your head. In the case of a guarantee it is not just a question of having a good one, but making sure all the circumstances leading up to and attending the execution of the guarantee are as I have set out above.

        Comment


          #5
          Hi I'm new here so please be patient . I signed as garantor for my son on his flat after leaving Uni. circumstances have arisen and he is being evicted in 2 months. I am now liable for his debt of about £650 missed rent. I have no way at present of paying in one go and need to know if a payment plan can be set up to pay this off with his landlord. can my son set one up or is it now down to me.

          Comment


            #6
            Your son is liable for the debt, you may be liable as a guarantor.

            Your son should offer the landlord to pay off the debt however he can afford to pay it, you can then help your son meet the agreed payments if you can.
            Don't let your son simply pass on his debt.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              Section 4 of the Statute of Frauds Act 1677 (as amended) says:

              Noe Action shall be brought whereby to charge the Defendant upon any speciall promise to answere for the debt default or miscarriages of another person unlesse the Agreement upon which such Action shall be brought or some Memorandum or Note thereof shall be in Writeing and signed by the partie to be charged therewith or some other person thereunto by him lawfully authorized.

              There is an argument that the effect of the above is that the only formality required is that a guarantee should be in writing. there is no mention of consideration.

              It is generally argued that to be on the safe side and to avoid argument that a guarantee should either be a deed or expressed to be made in consideration of a sum (which only need be nominal) paid by the person to whom the guarantee is given to the guarantor.

              I have just learned of section 3 of the Mercantile Law Amendment Act 1856 which says:

              No special promise to be made by any person to answer for the debt, default, or miscarriage or another person, being in writing, and signed by the party to be charged therewith, or some other person by him thereunto lawfully authorised, shall be deemed invalid to support an action, suit, or other proceeding to charge the person by whom such promise shall have been made, by reason only that the consideration for such promise does not appear in writing, or by necessary inference from a written document.

              That seems to say that consideration is needed but does not have to be expressed in the guarantee or otherwise in writing. That leaves me wondering how you would go about proving a consideration if it is not recorded in writing. In a landlord and tenant situation where the landlord requires a guarantor and the tenant finds one it is difficult to see what consideration passes from the landlord to the tenant.

              Comment


                #8
                The guarantor is (usually) making a promise to do something (subject to specific conditions arising), so that's a candidate for consideration.

                Old legal language is a bit fraught though. It's hard to parse " promise to be made by any person to answer for the debt, default, or miscarriage or another person" now.
                It would seem to mean " promise to be made by any person to answer for the ...another person" which doesn't really make any sense.
                [A] "promise to be made by any person to answer for ... another person", reads better, but does require some mauling.

                I can't imagine that "or another person" is a typo for "of/for another person" after 170 years.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  The promise a guarantor makes is the guarantee. What is the consideration for the promise?

                  There is in fact a typo: miscarriage or another should read miscarriage of another. The text was cut and pasted from the government site! See here for correct text.

                  Comment


                    #10
                    There is in fact a typo: miscarriage or another should read miscarriage of another. The text was cut and pasted from the government site!.
                    Ha, I checked the legislation site as well!

                    Originally posted by Lawcruncher View Post
                    The promise a guarantor makes is the guarantee. What is the consideration for the promise?
                    The promise is both. If I contract with you to give you £100 subject to a condition, the £100 is the promise and the promise is the consideration.

                    The only issue here is that the amount is not known (which has an issue with certainty), but it's value, if the condition is met, is more than nothing.

                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #11
                      Originally posted by jpkeates View Post
                      The promise is both. If I contract with you to give you £100 subject to a condition, the £100 is the promise and the promise is the consideration.
                      Not sure I can agree with that.

                      There is a difference between:

                      A. In consideration of £1 paid by you to me I agree to pay you £100 if X fails to comply with his obligations under his tenancy.

                      and

                      B. I agree to pay you £100 if X fails to comply with his obligations under his tenancy.

                      In A the consideration is £1 and the promise the agreement to pay £100 in case of default. In B there is only the promise.

                      Originally posted by jpkeates View Post
                      The only issue here is that the amount is not known (which has an issue with certainty), but it's value, if the condition is met, is more than nothing.
                      I think the point is rather that the amount is not expressed. What section 3 seems to be saying is that if you have a document which says: "I agree to pay you £100 if X fails to comply with his obligations under his tenancy" it does not fail for want of a consideration if there is in fact a consideration.

                      Comment


                        #12
                        Hello, I have a guarantor agreement to which has only been signed by the guarantor. There is also no where on the paper where it states if it is a deed or not.There is no witness signature in the space for this, what does this actually mean ?

                        Comment


                          #13
                          It means the document is not a deed. Is the guarantee expressed to be in consideration of anything?

                          Comment


                            #14
                            I just found an observation on section 3 of the Mercantile Law Amendment Act 1856 in an academic paper dating back to 1974. Since it is copyright I have not reproduced it. See paragraph 67.

                            Comment


                              #15
                              This is what the paper states, This guarantor agreement creates a legally binding document. If you do not fully understand the nature of the agreement, then it is recommended that you take independent legal advice before signing.

                              This agreement is for use with the letting of residential property and their associated tenancies. As such, this is a legal document and should not be used without adequate knowledge of the law of landlord and tenant.

                              It is essential that a copy of the proposed tenancy agreement is attached to the guarantor agreement and that the guarantor is given adequate opportunity to read both documents before signing.

                              If the guarantor is not able to be present, in person, to sign the guarantee it is recommended that the guarantee is signed at least seven days before the tenancy starts.

                              It goes on with guarantor's details i.e name address telephone and then landlord's details along with tenant and rental address including rent per month.

                              This is the next section.

                              The landlord agrees to let the property to the tenant(s). In consideration of this, the guarantor agrees to act for the tenant(s) should they fail for any reason, to met the financial commitments arising from the tenancy agreement entered into in respect of the property.

                              The guarantor agreement refers to the current tenancy being undertaken and any extension or renewal of that tenancy. All references to the landlord herein shall be deemed to include the landlord's agent or any person authorised to act ont he landlord's behalf.

                              The guarantor undertakes to pay to the landlord from the date of this agreement from time to time the rent within 10 days of receipt of a written demand from the landlord or his agent addressed to the guarantor if the tenant following demand has not paid the amount being demanded when it was due under the tenancy agreement.

                              The guarantor shall pay and make good to the landlord on demand all reasonable losses and expenses of the landlord incurred as a result of default by the tenant in the performance or observance of the tenant's covenant under the tenancy agreement. Any failure of the landlord in demanding or collecting the rent when it falls due, and any time to pay which is given to the tenant by the landlord shall not release the guarantor or in any way affect the liability of the guarantor under this agreement. Should the guarantor die during the currency of this agreement, the guarantor's estate will be liable as surety and co-principal debtor.

                              If the tenancy is for a fixed term, then this guarantee applies for the whole of the term and is not revocable during that term.

                              If the tenancy is periodic or has become periodic by agreement or the operation of law, then this guarantee may be terminated by written notice by the guarantor subject to the tenant vacating at the earliest legally permissible date required for possession. If the tenant fails to vacate on this earliest date then the guarantee shall continue until the tenant vacates.

                              It is agreed that there shall be no right to cancel this agreement once the tenancy has begun and the consumer protection(distance selling) regulations 200 shall not apply in this case.


                              That is everything on the agreement I have in my possession, what does this mean and also there is now witness signature on this copy neither is there a signature by the landlord on there.

                              Comment

                              Latest Activity

                              Collapse

                              • End of tenancy checks
                                Kate foster
                                hello all,
                                i am having a slight issue. When I let the property the toilet seat was white which matched the black and white bathroom. The tenant without discussing with me first changed the toilet seat to a greenish colour to match their showercurtain.
                                the seat does not look good and I want...
                                15-12-2018, 19:58 PM
                              • Reply to End of tenancy checks
                                Kate foster
                                Thank you for your reply and it’s really annoying when these things happen. They have chucked the white seat away so they will have to buy a new one to replace that green one. I am going to bring this up with them as if they had changed for like to like I would have no problem with that. Kate...
                                15-12-2018, 20:46 PM
                              • Reply to End of tenancy checks
                                JK0
                                I get this nonsense too. I put in an expensive seat, and tenant chucks mine away, and puts in some cheap rubbish.

                                Is it possible they kept yours? Otherwise, perfectly reasonable in my view to ask for replacement.
                                15-12-2018, 20:26 PM
                              • Tenancy agreement
                                Kate foster
                                Please can someone advice me on the following situation. I am renting out a one bed house for monthly rent of 650 pounds. A couple are very interested and jointly they both earn 52k which covers the full rent. One of them earns 35 k and they have been honest and said that the girl has issues with her...
                                07-12-2018, 21:26 PM
                              • Reply to Tenancy agreement
                                Kate foster
                                Thank you all for your replies and sharing your experiences. Has definitely helped me and as the tenant didn’t want to be credit referenced they decided to not go ahead. I have fortunately found new tenants who have passed all referencing. Thank you all 😊👍
                                15-12-2018, 19:51 PM
                              • A bit of a mess
                                Procrastinating
                                Hi,

                                Thanks in advance to anyone who can help. My reason for posting is that my wife has found herself in a bit of a mess with her pre-marital home which is in Wales. When she moved out she let the property, initially to a friend of a relative. It seemed like a stroke of luck so when...
                                15-12-2018, 01:29 AM
                              • Reply to A bit of a mess
                                JK0
                                Is the situation irretrievable if o/p's wife does the training and gets the license now, guys?
                                15-12-2018, 18:02 PM
                              • section 21 and how to rent guide
                                lavy
                                Hi do you have to serve an up to date how to rent guide when a tenancy moves to a periodic tenancy from a standard 6 months tenancy or is the original how to rent guide sufficient in order to serve a valid section 21 notice...
                                09-12-2018, 10:11 AM
                              • Reply to section 21 and how to rent guide
                                KTC
                                No, that's a "if you give the document right at the start of the tenancy, the question never comes up" reply.



                                As Giles stated in his reply to you, while the Secretary of State may make relevant regulations and the power of the Secreatry of State was transferred,...
                                15-12-2018, 14:15 PM
                              • Heating
                                lsmt971
                                Hi

                                I have a three bed terrace which is split into two flats. The council have just made an inspection and although everything is ok, they have picked up on the fact the property only contains one combi boiler located in flat 1. This also serves flat 2 who regulate their heating via the...
                                15-12-2018, 10:02 AM
                              Working...
                              X