Questions about guarantee deeds in tenancies

One of my Landlord Law members wrote to me recently with some questions about guarantees suggesting that they would be of general interest.

I think he is probably right, so here goes:

Guarantors:

1)      Do their responsibilities end at the expiry of the original AST period even if the tenancy continues?

It depends on how the guarantee deed is drafted (but see below). If there is nothing to the contrary, it will almost certainly be taken that the guarantee will end at the end of the fixed term.

Technically  the tenancy they guaranteed will end at that time.  Any periodic tenancy which follows is a new tenancy (created by s5 of the Housing Act 1988)

2)      IF SO, can they be held accountable for the debt existing up to the time of expiry?

Yes.  Or there would be no point in having a guarantee.  The guarantor will (subject to the wording of the guarantee) be liable for money due from the tenant for the period the guarantee covers.

3)      IF NOT can their liability run on ad infinitum creating an ever increasing debt?

The law will not want to impose an unlimited liability in time on the guarantor.  In my view, any agreement which attempts to impose liability on the guarantor after the end of the fixed term will need to allow some sort of (reasonable) notice period allowing the guarantor to terminate their liability, in order to be effective.

For example, my guarantee deeds provide for the liability to continue after the end of the fixed term if the tenant remains under a periodic tenancy (so long as the terms do not change), subject to the right of the guarantor to give two months notice to end it.

This is reasonable as it is the notice period for a section 21 notice and will, therefore, allow the landlord to evict the tenant (should they not want to continue to let to them without a guarantor) if the tenant is unable to find a replacement guarantor during that period.

4)      Does the guarantee holder have a responsibility to inform the guarantor of their growing/impending liability?

No, but they would be foolish not to.

5)      If an AST is modified in a way that is not material to a Guarantors risk, does this still invalidate their liability?

In my view it would.  A guarantor guarantees a tenant under a specific tenancy agreement – the terms of which they need to be aware of and to have agreed to.

If this is changed, then it is no longer the tenancy that they have guaranteed and therefore their guarantee will end automatically.  This is also the case if a new tenancy agreement is signed by the tenant.  The landlord must get guarantees re-signed at the same time.

6)      If an AST is modified, is the guarantor liable for shortfalls arising up to the time of the modification?

Yes (subject to the points above) – they will be liable under the guarantee until it ends.

7)      Are any of the foregoing affected by a Guarantor wording that sets no limit on time or circumstances?

A guarantee which does that would, in my view, be void under the Unfair Contract Terms regulations (now part of the Consumer Rights Act 2015).  I would not recommend it.

Most guarantors will assume, when they sign a guarantee for, say six months, that they are guaranteeing the tenant for a six months period.  That is the tenancy that they are guaranteeing.  It will need careful wording and fair dealing to make them liable after that.

For example, few guarantors signing a guarantee for a six months fixed term tenancy agreement would envisage being liable for the next 30 years if the tenant stays on under a periodic tenancy.  And I don’t think the law would allow it.

No wording will suffice to make the guarantor liable under any subsequent tenancy agreement that is signed as they can only be liable under the tenancy agreement terms and conditions that they have agreed to.

8)      Is there a time limit by which claims against guarantors must be made.

Yes, under the Limitations Act, claims brought under contract must be done within six years.