Landlords looking to minimise property risk face a growing number of products that can help them ensure rental payments. But, as ever, there are many differences between products and plenty of fine print to scan to see which is best for any particular circumstances. Read on to find out which will suit your upcoming rental needs.
Any property transaction comes with some degree of risk, especially in the highly fluctuating rental market where tenants and landlords face an increasingly uncertain financial future. Two solutions are increasingly popular to mitigate these risks: the traditional rent guarantor service and the increasingly popular rental guarantee. While they sound similar, each serves a particular and distinct purpose with various benefits for the landlord.
What (and Who) Is A Rent Guarantor?
A rent guarantor is an individual or legal entity that signs a guarantee contract to pay a tenant’s rent payments if they cannot, for whatever reason, make that payment. Typically this might be a family member or associate, while there are now professional guarantor services who sign up to take on the role based on the income and credit rating of the prospective tenant.
In some situations, a rent guarantor can step in for new working renters without a payment or credit history, students or the self-employed. Advantages of a rent guarantor include providing tenants and landlords with confidence, they can speed up a rental process and sometimes cover other debts like bills and damages, should that happen.
What Is A Rent Guarantee?
A more modern take on rental management, a rent guarantee is a contract with a property or finance management company that promises to pay the rent should the tenant not be able to. Note, it is not a typical landlord insurance product.
Rent guarantees are typically a business-to-business relationship, removing reliance on an individual to pay the rent should the tenant find themselves in difficulties. This provides financial security for landlords, even if the property is left empty should the tenant need to leave.
Additional benefits of a rent guarantee include legal support to cover legal fees associated with evicting a tenant or debt recovery. The guarantee might also cover damages. However, the guarantee will have terms and conditions about when payments for missed rent kick in and the tenant can still go into arrears before the claim will pay out.
However, for larger-scale landlords, a rent guarantee scheme provides a useful backstop against non-payment of rent that can maintain business income across a growing property portfolio, even against the payment of premiums that the landlord faces per guarantee.
A benefit of a rent guarantee for the tenant is that they do not bear a direct financial responsibility, unlike when working with a rent guarantor.
Differences Between Rent Guarantor and Guarantee
The primary difference is that the landlord takes out a rent guarantee, while the tenant has to find the rent guarantor (individual or company). For the landlord, having a guarantor means immediate rent security, while there will be a delay in being recompensed through a rent guarantee.
A rent guarantee also, typically, covers a broader range of fees including legal expenses and eviction costs. However, as policies look to become more competitive, commercial guarantors might offer to cover those costs.
For the tenant, the rent guarantor solution makes them a more attractive bet for a prospective landlord, and saves the landlord some of the paperwork.
For the landlord, they can choose which option to go with depending on their business needs and the eligibility and type of tenant in waiting. While the rental guarantee provides clearer financial security and legal assistance, a strong guarantor, especially through a business can prove just as valuable.
Conclusion
Whatever the choice, the rental market continues to evolve as property rental prices increase, and bills rise, with tenants facing a more uncertain financial future. Landlords, especially those new to the market, should compare policy terms, look at the costs and benefits, and consider combining both options in edge cases where they feel the need for maximum protection.