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Rent Guarantor

Opinion

A Rent Guarantor is someone who pays the rent if the tenant does not pay.

Who should use a Rent Guarantor?

A person applying for a rental property who has limited renting experience (eg First time renter) or does not earn enough to prove they can afford the rent.

Not sure if that's you. Click here.

Who could be the Rent Guarantor?

A parent or family member who has the financial capacity to pay the rent if the tenant does not. This is usually a family member because there is typically no financial incentive to become a guarantor. Rather the family member is happy to help because they know their child (for example) has the integrity to pay them back (if they can't pay the rent) or the parent is happy to help so their child can secure a safer living environment (as opposed to cheaper rental property).

How to set up a Rent Guarantor?

It must be said upfront there is no clear best way of setting up a rent guarantor. Why? Legislation does not work for all parties.

There are the two options to set up a Rent Guarantor:

  1. Add the Guarantor as a 'tenant' on the lease
  2. Create a rent guarantor letter and attach it to the lease

To help you decide which is one is better for your situation here is a look at from each perspective.

For this purpose lets assume the guarantor is 'Dad' for his daughter Lucy who looking for her first rental property.

1 - Add the Guarantor as a 'tenant' on the lease

Dad becomes a tenant on the lease agreement. It's more than likely Dad (the guarantor) would be noted in the lease agreement as a non-living occupant however Dad is still responsible for all tenant obligations as per the lease just like Lucy is. For example Dad is not just responsible for rent but also legally responsible for looking after the property too.

From the agent or landlord's perspective:

This is most secure form of a guarantor for a landlord. This is because Dad is on the lease as a tenant and there is a clear legal path for the agent to recoup loss of rent from the guarantor (Dad).

From the guarantor (Dad's) perspective:

Typically the guarantor does not want the additional legal responsibilities and also does not want to be too involved in his daughters living arrangements. Wants his daughter to stand on her own feet.

From tenant (Lucy's) perspective:

Wants her Dad to help her get a rental property (that she otherwise could not) but does not want Dad overlooking (or having visibility) of everything that is happening at the rental property. Just too much involvement.

Summary: This would be the preferred method for the agent (or landlord) because it's provides absolute legal security to the landlord however it typically does not work for the tenant or the guarantor - who I should point out is not technically a 'guarantor' in this set up (rather a 'tenant').

2 - Create a rent guarantor letter and attach it to the lease

This is a separate agreement that is attached or linked to the tenancy agreement. This agreement or letter would state that the guarantor will pay the rent if the tenant (Lucy) does not.

From the agent or landlord's perspective:

In most states of Australia a Guarantor is not defined in the Residential Tenancies Act so there is no clear (or atleast mainstream) legal pathway to recoup the unpaid rent through a 'Guarantor'. This is with the small exemption of Victoria, without getting too legal on you Consumer Affairs state "A rental provider or agent can only ask for a guarantee as well as a bond if the rent is more than $900 a week." In summary it's not water tight for an agent or landlord to rely on (to get assurance rent will be paid).

From the guarantor (Dad's) perspective:

This would be most ideal for Dad because he is not too involved in the tenancy and simply is able to help his daughter secure a rental property.

From tenant (Lucy's) perspective:

Same as above. This would be most ideal for Lucy because she does not want her Dad involved in the tenancy ongoing.

Summary: This works for the tenant (Lucy) and the guarantor (Dad) but it does not provide clear security to the agent or landlord however it does provide some confidence to the agent because they can see Lucy has full support of her parents even though the agent may not be able to rely on it it did go to court.

If you want to go down this track you can get free templates here.

For the sake of transparency we do not have any affiliation with NetLawman.

Important note: I am not a lawyer. I have tried to provide clear outcomes and possibilities for you to think about without overcomplicating it.

If you would like to learn more about what you need to do to get approved for a rental property based on your own situation click here.


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