In a perfect world, all our lease contracts would have a warranty with a 100% money-back guarantee if the resident fails to pay rent. Since we own/operate in the real-world, there a few guarantees. The exception to this multifamily reality is guarantors. This article will provide you with resources and industry best-practices to help you navigate the challenges when guarantors are part of the leasing process. As always, this REDBOOK Blues article does not provide legal advice. If you need legal advice, contact one of AATC’s member attorneys (https://www.aatcnet.org/legal-services-program).
You may be familiar with the adage: income is ability to pay, credit score is willingness to pay. But what happens if a potential renter (e.g., a college student, someone will mental disability, refugee, etc.) is unable to demonstrate sufficient personal income to meet your rental criteria; however, some else is willing to accept financial obligations under the lease.
Great news. As always, the TAA REDBOOK is an excellent resource.
Click on the below link to learn about the legal and operational issues concerning guarantors.
https://www.taaredbookonline.org/lease/protections-in-the-taa-lease/extra-steps-to-take-when-you-have-guarantors-on-the-lease
Let us look at the legal, operational, and lease forms resources provided by TAA when working with lease guarantors.
Legal Issues
Chapter 92 of the Texas Property Code provides the rights and responsibilities for residential lease guarantors including that the length of time and amount of monthly rent must be listed in the guarantor agreement. If the leaseholders renew, the guarantor is only obligated for the amount in the original lease, unless they agree to the new rental rate. If leaseholders change at renewal (after the initial lease term) the guarantor is no longer obligated. Chapter 92 does not limit the guarantor’s obligations for damages, fees, utilities, or other amounts that result from the renters failure to pay.
Operational Issues
Guarantors may or may not be involved in the rental application process. TAA strongly recommends that you communicate and communicate some more with guarantors. Be sure to fully inform guarantors of their obligations under the TAA Lease. Inform guarantors if your screening criteria includes performing a credit check, income verification, criminal history, employment verification, etc.
The Lease
Be sure to use the TAA Lease Guaranty form. This form includes the information you need to ensure that the guarantor relationship is valid.
AATC members can mitigate their financial risk by having income deficient renters secure guarantors. Understanding and clearly communicating the roles and responsibilities of guarantors to lease-holders and guarantees helps ensure a smooth landlord-tenant experience.
Nicole Zaitoon, Allied Property Management, is AATC’s 2023 Government Affairs Committee Chair and a member of AATC’s Board of Directors.
