What is the most effective way to set up a rent guarantee within your lease agreements?
There are various legal forms or agreements a landlord can use to protect himself against unpaid rent, unpaid utilities or breach of agreement.
Quite often a young tenant or student may not have sufficient income or credit history to qualify for a lease. A guarantor such as a family member or an employer can then co-sign the lease agreement and offer a rent guarantee to the landlord.
Make sure that you can get in touch with the co-signer at any time to collect unpaid money. You may even consider more than one co-signer as added security. All signatories should have a copy of the lease agreement.
If more than one adult person will be occupying the premises, they should all be named as tenants and all of them should sign the lease agreement, even in the case of married couples.
This type of property agreement must have a Joint and Several Tenancy clause. This means that any one tenant is legally responsible for the entire rent, in the event of the other(s) not paying. You can also terminate tenancy for all the tenants if there is serious violation of terms by any one tenant. Take care to explain their obligations as to the rent guarantee and let them sign or initial this clause specifically.
NOTE: Links to all these free forms to assist you with managing your rental properties (application form, rental agreement, guarantor agreement etc.) can be found on our main Real Estate page.
Another option is to enter into a lease agreement with the guarantor directly. The guarantor will complete the rental application form, qualify for the apartment and sign the lease agreement as the Lessee.
The following provision will then be added:
Name of person(s) other than the Lessee who will occupy the Premises. (Add relevant details and attach copies of identity documents.)
This type of agreement works well with corporate rentals, where they may even from time to time change the occupant of the apartment (with prior written approval by the landlord). It can also be used where the landlord enters into an agreement with the parents of a student.
The alternative is to have the standard lease agreement with the tenant or person occupying the premises and a separate Guarantor Agreement.
A landlord can demand a higher security deposit up front from a marginal tenant, provided it does not exceed the limits applicable in his area.
Important: This is applicable after a tenant has been provisionally approved, subject to a higher deposit and must not be used in a discriminatory way at the application stage. A landlord may also ask for additional advance rental payments as permissible by law.
As protection against non-payment of utilities, the landlord may consider registering the utilities in his own name. The tenant will then be invoiced separately for usage of gas, electricity, water etc. (You must be able to prove usage with individual meters).
You may then be legally entitled to add the following clause to your agreement:
Should the tenant be in default with rent payment the landlord shall not be obligated to sell the tenant electricity.
This can act as additional guarantee or may be an avenue to get rid of a non-paying tenant.
A landlord's first step to protect himself is to do proper tenant screening and to have a comprehensive agreement in place. However, even model tenants may find themselves unable to pay the rent due to changes in employment e.g. redundancy, breakdown of relationships or lengthy sickness.
Howver, many property owners rely on rental income to cover the interest on the bond. A variety of rent guarantee insurance products are available to protect against unpaid rent and/or to cover legal expenses associated with eviction.
The landlord can implement a combination of the methods suggested here to effect his rent guarantee and protect his property investment.
Note: Because laws can vary greatly in different countries or states, it is always advisable to seek legal counsel to assist you with applicable laws in your area and to review your implementation of our free real estate contract forms.
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