Guarantors

The Importance of Guarantors in Light of the Renters’ Reform Bill

As the Renters’ Reform Bill makes its way through Parliament, landlords across England are adapting to a landscape set for significant change. Among these changes, the abolishment of Section 21 ‘no-fault’ evictions and reforms to the court process for reclaiming rent arrears have underscored the importance of a robust guarantor system for landlords seeking to safeguard rental income.

What is a Guarantor?

A guarantor is a third party—usually a family member or close friend—who agrees to cover a tenant’s rent if they fail to pay. This safety net provides landlords with additional assurance, especially when renting to individuals with limited credit history, students, or those with a patchy rental record.

Why Guarantors Matter More Now

Under the current system, landlords can pursue eviction under Section 8 for rent arrears or use Section 21 for a smoother process. However, with Section 21 set to be abolished, landlords will have to rely entirely on Section 8, which requires sufficient grounds and can involve lengthy court proceedings.

This puts even greater importance on having a guarantor. If tenants fail to pay rent, landlords may face months of lost income while navigating the legal system. A guarantor allows landlords to avoid this uncertainty by placing financial responsibility on someone else who is more likely to have the means to pay promptly.

Changes in the Renters’ Reform Bill

The Renters’ Reform Bill also proposes strengthening tenants’ rights, making it harder for landlords to evict tenants without following strict legal procedures. Here’s how these changes impact guarantors:

• No-fault eviction ban: Without Section 21, landlords must rely on Section 8, which is a more arduous process.
• Court backlogs: Pursuing rent arrears through legal action could take months. Guarantors provide an alternative to mitigate financial losses.
• Increased tenant protections: With new regulations limiting rent increases and eviction criteria, landlords may face additional hurdles when trying to recover unpaid rent, making guarantors an even more attractive option.

The Pressure on Guarantors

While guarantors offer landlords peace of mind, the arrangement places significant pressure on the individual who signs up for this role. If a tenant defaults, the guarantor becomes legally obligated to cover the unpaid rent. This dynamic can strain personal relationships, particularly if guarantors feel blindsided by the scale of their financial responsibility.

Should Landlords Require Guarantors at All Costs?

In light of the Renters’ Reform Bill, it’s tempting for landlords to make guarantors a non-negotiable requirement. However, landlords must strike a balance:

1. Screen Tenants Thoroughly: Strong references and credit checks may reduce the likelihood of needing to rely on a guarantor.
2. Explain Responsibilities Clearly: Make sure guarantors understand the terms of the agreement, including their full liability.
3. Consider Alternatives: Insurance-backed schemes, such as rent guarantee insurance, can provide similar protection without relying on a third party.

Conclusion

The Renters’ Reform Bill has raised the stakes for landlords, who will now need to be more proactive in managing risk. Guarantors offer an invaluable layer of protection in this evolving legal landscape. However, landlords should use this tool judiciously, ensuring fairness to tenants and guarantors alike while securing their rental income in a fair and compliant manner.

By understanding the implications of these changes and adapting strategies accordingly, landlords can navigate the challenges posed by the Renters’ Reform Bill with greater confidence.