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What Is a Guarantor? Key Facts for Rentals & Responsibilities

  • Writer: Staircase Financial
    Staircase Financial
  • May 9
  • 4 min read

Updated: Jun 5

When entering rental agreements or loans, having a safety net plays a major role in the turnout of such procedures, especially when reassurance is needed by all parties involved. That’s where understanding the guarantor meaning becomes important. This article dissects a guarantor’s responsibilities and risks in renting requirements whether you’re looking for or offering to be one.


What Is a Guarantor?


Business meeting explaining what is a guarantor and guarantor meaning

A guarantor is someone who promises to fulfill a borrower or renter’s financial obligations if that person fails to meet them. This scenario is typically seen in loans and rental agreements as a form of security, “guaranteeing” landlords or lenders payment even if the original party defaults. 


In most cases, guarantors are usually close relatives or parents who have a strong credit and stable income. They serve as backup for individuals who may not qualify for certain agreements on their own, such as those with poor rental history, low credit scores, and limited income.


What Does Guarantor Mean for Renting?


A guarantor for rental assumes responsibility for the rent and any property damage if the tenant cannot. This protects landlords from rental defaults and secures them of their rights to request payments. For instance, a college student is more likely to meet renting prerequisites in the presence of someone who signs to pay on the renter’s behalf.


Usually, a guarantor is added to the tenancy agreement which legally binds them to the same conditions as the tenant. He or she can be anyone over 18, with good credit history and a clean report of his/her income and assets. 


What Should You Know Before Becoming a Guarantor for Rental?


Before agreeing to act as a guarantor for rental agreements, it is important to understand the full guarantor meaning and the legal responsibilities involved. Acting as a guarantor is a serious commitment that could affect your finances and credit record.

Consider these key points beforehand:


  • Read the tenancy agreement carefully to be clear on what you are guaranteeing, whether it covers only rent or also includes damages to the property.

  • Check if there is a limit to your liability. Some agreements allow you to place a cap on the amount you could be held responsible for.

  • Understand whether you are jointly and severally liable with the tenant, meaning you might be responsible for the entire rental amount if others default.

  • Clarify the duration of your guarantee. Some guarantees end with the initial fixed term, while others may continue if the tenancy renews.

  • Consider seeking independent legal advice if any terms seem unclear or risky.


What Is the Downside of Being a Guarantor?


While being a guarantor can greatly help secure housing, the responsibilities to bear are long-term and serious, primarily in terms of the financial risk that comes with them. If the tenant fails to pay a guarantor can be pursued or legally demanded to cover the debt.


This can negatively affect the guarantor’s credit score and stable income, as well as impact their ability to take out loans. In grave cases of financial exposure and loss, agreements can lead to lawsuits. It is important to be firm when signing up to be someone’s guarantor and set a ceiling on how much one can be held accountable for.


The official guidance in New Zealand on guarantor obligations is available through Consumer Protection's guarantor advice, which outlines key risks and responsibilities.


Legal Considerations for Guarantors in New Zealand


Legal considerations for guarantor agreements.

In New Zealand, the Residential Tenancies Act 1986 does not specifically regulate guarantors in tenancy agreements. Instead, any guarantee arrangement falls under general contract law. Once a guarantor signs a private agreement with a landlord, they become legally obligated to fulfil the tenant’s financial commitments if the tenant defaults.


Because the law treats guarantors as parties to a binding contract, it is crucial to carefully review any documents before signing. Where possible, guarantors should seek independent legal advice and confirm if their guarantee is limited to a specific period or maximum amount.


Understanding the guarantor meaning within New Zealand’s legal framework allows individuals to better assess the risks and make informed decisions.


Conclusion


Knowing a guarantor’s responsibilities and risks is essential for all the parties involved when renting. While it is a typical procedure in many property and financial scenarios, the risks are undeniable. It’s important to review agreements carefully and only proceed with full preparation for this legal commitment.


To stay up to date with the latest property news, tips, and expert resources, visit our Guides and Resources hub.


Frequently Asked Questions


Can a guarantor withdraw his guarantee?


A guarantor can withdraw his guarantee provided that the agreement he enters cites clauses allowing him to retract under specific conditions.


What happens if a guarantor fails?


If a guarantor fails to fulfill his obligations, the landlord has the right to initiate collection proceedings on both him and the tenant. This can further lead to court action and legal consultations, affecting the guarantor’s credit score and assets. 


Can a guarantor get his money back?


A guarantor can ask for reimbursement to the original borrower or tenant, either voluntarily or through legal means.


 
 
 

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