Obligations Of A Guarantor

A Guarantor is someone who agrees to be legally responsible for a specified loan or agreement; should the person who has taken out the loan fail to make repayments. A Guarantee may also be known as an indemnity. Guarantees and Indemnities are common tools for Creditors to use to protect themselves in the case that the Debtor defaults and is unable to pay.

A Guarantee is a contractual promise to:

1. Ensure that a third party fulfills its obligations and/or
2. Pay an amount owed by a third party if it fails to do so itself

An indemnity is a contractual promise to accept liability for another’s loss.

Acting as a Guarantor for a tenancy agreement

A Guarantor may be required if you decide you want to rent a place to live. A Guarantor is someone who agrees to pay your rent if you don’t pay it. It can be anyone but usually is a parent or close relative.  If you don’t pay your landlord what you owe them, they can ask your Guarantor to pay instead. There is a legal requirement for a guarantee agreement to be in writing. The agreement sets out the guarantor’s legal obligations. If you are looking to act as a Guarantor then you should ensure you check the tenancy agreement so you can see exactly what obligations you are guaranteeing.

If you are providing a Guarantee to an individual who lives in shared accommodation, there might be a joint tenancy in place. Any Guarantee you provide will apply to all of the rent and not just your share. It’s best to check the Guarantee agreement carefully as it may be possible to change the guarantee agreement.

It is imperative that before becoming a Guarantor you read and understand the document that you are signing. Guarantees can also create liabilities for administration charges, interest and costs of recovery in the event of a default. A Guarantor may also still be held liable even if the guarantor has lost their job, fallen ill or has been made bankrupt.

Is the Guarantee always enforceable?

There are some circumstances in which the guarantee may not be enforceable, these can include but are not limited to:

1. Where the guarantee was the product of fraud, negligent misrepresentation or undue influence.
2. Where the primary agreement is varied without the knowledge of the guarantor.
3. The guarantor was not made aware of material factors that might affect the relationship between the creditor and borrower.

Can a Guarantor recover money or their loss from the Borrower?

If a guarantor is forced to settle a borrowers debt, they may be able to seek to recover their loss directly from the borrower. A Guarantor can do this by ‘Subrogation’ which means they step into the shoes of the lender and take direct action against the borrower.

The requirements of subrogation are:

1. The guarantor has paid under the guarantee
2. The parties have not by agreement excluded the right of subrogation

If you wish to obtain legal advice on being a guarantor or discuss your options in recovering any monies from a Guarantor then please do not hesitate to get in touch with a member of our Litigation team who would be happy to assist you and provide no obligation advice.