What Is a Lease Guarantor? [The Ultimate Guide]

In this article, you’ll find an explanation of what a rent guarantor is and what the obligations of a guarantor include.

In addition, we’ll discuss the difference between personal and professional guarantors and the pros and cons of each.

Keep reading to get a full understanding of what a guarantor is and how they can help you.

So what is a rental guarantor definition?

Per New York University, a guarantor on a lease is “someone who is willing to take the financial liability of your lease if you are unable or unwilling to fulfill it.”

Let’s imagine these very real scenarios that real estate investors face on a regular basis when evaluating prospective tenants for their properties:

• A student at a local university who has no references, income, or credit history
• An international resident who is in the US to start a new job and has no US credit history or Social Security number
• A freelancer who showed very healthy income the previous year when in a full-time role
• An entrepreneur starting their own business that has yet to report earnings or income
• A professional who has a steady job but falls slightly short of meeting your standard rent-to-income ratio requirements

These are all situations in which a renter wouldn’t typically meet a landlord’s standard requirements to have the assurance they would be able to pay their rent regularly and on time.

Good property managers are meticulous about approving a renter. They conduct background checks via tenant screening services that also show applicants’ credit history.

In the real estate industry, late payment of rent is called delinquency, and stopping payment of rent is called default.

A guarantor is typically required when a person does not fully meet landlord qualifications on their own.

For example, if your income is lower than what the building requires, if you have an imperfect credit history or thin credit, if you have no Social Security number, or if your income source is unstable (like in the case of freelancers or gig workers).

As a result of the situations like those described above, the landlord would very likely request that the prospective renter find a guarantor willing to co-sign their lease.

Now that you’ve understood the meaning of “lease guarantor”, let’s dive deeper into the details.

Usually, when applying for a rental unit, your landlord or leasing office will ask for a guarantor if your application falls short of their standards.

In that case, the renter can find either a personal guarantor, like a relative or close friend, who can prove they have the income and/or assets to guarantee the lease.

Or the renter can use a professional apartment rental guarantor service who will guarantee the lease for a fee.

If the renter stops paying their rent, breaks their lease, or stays in the rental unit after the termination of the lease, then the landlord would pursue the guarantor for what’s owed.

But this is where things can get tricky.

If the personal guarantor doesn’t completely understand what they signed up for, they can be hard to find and unlikely to pay an outstanding debt that they never truly expected to have to cover.

Landlords and property managers can spend significant time tracking down personal guarantors and explaining their obligations to them.

In the case that the apartment rent guarantor refuses to pay, their credit history could be seriously affected for years.

They can be pursued for the debt owed by collectors and deal with the court and real estate attorneys.

Professional lease guarantor companies are a different story: the landlord will be interacting with a company that has operationalized lease guarantees.

The professional guarantor companies share a common goal with the landlord to resolve the issue as quickly as possible, and as a result, often include other value-add services free of charge.

For example, if one of their renter customers is late on their rent, they will reach out to the renter, understand why they haven’t paid their rent, and help get them back on track.

These professional rental lease guarantor services also have a claims process that requires the landlord to show some proof that the rental unit has been vacated or the lease has ended.

Once your landlord informs you that you’ll need a guarantor to rent in their building, they will provide financial requirements for your personal guarantor.

You can either find an individual willing to take on that financial obligation should you stop paying your rent (and share the required financial documents to prove their assets and income).

Or, you can use a professional guarantor service that will walk you through their application process.

Alternatively, to use a professional guarantor company, the landlord or property manager should first enroll with the company directly.

Once enrolled, the landlord would send the renter an invitation to apply for coverage.

A personal guarantor is taking on a contractual obligation that asserts that in the case that the renter does not pay their rent, they will pay what’s owed — up to the entire value of the lease, plus potential damages to the apartment.

As this relationship is formal and enforceable in court, the personal guarantor must sign the lease.

In the case of professional guarantor services, the company providing your lease guarantee would send a surety bond to your landlord.

That bond guarantees up to the entire value of your lease, depending on the level of coverage your landlord has requested, and acts in lieu of a signature on your lease.

A guarantor’s renewal obligation varies according to the lease. Some leases will require the guarantor for only the initial terms.

Others will keep the guarantor on every time the lease is renewed, meaning the guarantor could still be liable 20 years later.

If the renter has been paying their rent consistently on time, and their situation has changed so that they can qualify for the apartment on their own, it’s possible their landlord will remove the requirement for a guarantor upon lease renewal.

But in most cases, a guarantor will be required to sign again upon lease renewal.

A guarantor cannot break a lease. However, a guarantor can ask the landlord that their guarantee be terminated.

That does not necessarily mean that the landlord will agree. And in the case that they don’t, the guarantor would still be obligated per the terms of the lease.

If a person is considering acting as a guarantor, they should weigh the risks of doing so carefully.

They are not just helping someone secure an apartment, they are also making themselves legally liable for the entirety of the lease amount.

Let’s look at an example:

Say the rent is $2,000 per month. For a 12-month lease, the guarantor would be liable for at least $24,000 ($2,000 x 12 months).

Depending on renewal terms, they could be on the hook for that, plus any contractual increases in rent, plus any damages, for as long as the renter occupies the apartment.

Yes, being a guarantor on a lease could affect your credit.

1. The landlord will likely check your credit prior to accepting an individual as a personal guarantor. A hard credit inquiry could temporarily affect the guarantor’s credit score.
2. If the renter breaks their lease, the landlord will pursue collections with the guarantor. This could affect the guarantors’ credit in a variety of ways for years.

Let’s further review the risks of being a guarantor:

• Short-term damage to the credit score: The landlord will most likely run a credit check on the guarantor, which could affect their credit for a period of 12 months.

• Long-term damage to the credit score: If the renter does not pay their rent on time, they could report the guarantor to various credit bureaus, which would lower their credit score for up to seven years.

• The outstanding rent could be sent to collections: it is the guarantor who will be called, emailed, and generally pursued by collections agencies to pay the outstanding debt. This could show up on their credit report as well.

A personal guarantor is not a panacea for a landlord. It opens the co-signer up to a tremendous amount of risk and often they do it as a favor and don’t fully understand the contractual obligations of what they’re signing.

There are other options out there, though. Professional lease guarantee companies were founded to take on this burden for renters and landlords or property managers and seem like a win-win for both parties.

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About the Author

With over 20+ years of experience in real estate investment and renovation, Brian Robbins brings extensive knowledge and innovative solutions to the HouseCashin team. Over the years Brian has been involved in over 300 transactions of income producing properties across the US. Along with his passion for real estate, Brian brings with him a deep understanding of real estate risks and financing.