About Guarantor Agreement Forms: All You Need to Know

What Is a Guarantor Agreement Form?

Guarantor agreement forms are a type of legal document commonly used here in the UK when dealing with financial transactions or procedures. They tend to be used during the acquisition of loans, mortgages, leases or other types of long-term financial commitment, and provide the creditor a sort of insurance regardless of whether it is a person or a business. That is, the guarantor (the party agreeing to pay back the debt should others fail to do so) will guarantee covering the cost of the investment if the principal debtor is unable to do so themselves.
They tend to be contractual in nature , and any sort of clause that will clearly define the obligations of the principal debtor will therefore need to be hashed out before either party signs. This works in favour of the debtor themselves, as it guarantees they will never be held liable for more than what was agreed on in the contract, therefore keeping them secure.
It is vital however, that the Guarantor is aware of the commitment that they are undertaking. If they are not, then there may be grounds for it to be challenged in certain circumstances, and the agreement may be considered void.
Our guarantor agreement templates can be used as a guide when drafting these agreements, and help to ensure that all relevant terms and conditions are included.

Components of a Guarantor Agreement

The essential elements of a guarantor agreement form are the declaration, parties, and obligations.
The Declaration:
The declaration portion of a form will often include several items for which the parties will need to agree to in order for the guarantor to be bound by the agreement. The most common items in the declaration will be the date of the agreement, the lender, the borrower, any sub-guarantors, and the guaranteed debts. For example, the form might read as follows: Guarantor Agreement Guarantor Agreement made as of _____________, 20____.
Substantial Guarantor: ______________ (the "Substantial Guarantor") Borrower: ________________ (the "Borrower") Lender: ________________ (the "Lender")
Purpose of Agreement: This Guarantor Agreement is entered into in the context of a loan and security transaction (the "Transaction") between the Substantial Guarantor, the Borrower, and the Lender. The parties intend that this Guarantor Agreement is "ancillary" to the Transaction.
Guaranteed Debt: For purposes of this Guarantor Agreement, "Guaranteed Debt" is defined as [insert description].
The Parties:
Guarantor forms will require the parties to be named. Often, one party will be a 3rd party to the original transaction and is agreeing to become responsible for the obligations of the underlying contract.
Obligations:
Finally, there will be an obligations section in the guarantor agreement form. The obligations section will describe the manner in which the guarantor should fulfill their promise. For example: The obligations hereunder shall be absolute and unconditional under all circumstances except [insert exceptions] and shall not be subject to any counterclaim, setoff, deduction or withholding, of any nature. Furthermore, the Guarantor hereby waives promptness, diligence, presentment, demand, protest and notices with respect to the Guaranteed Debt.

How to Complete a Guarantor Agreement Form

A Guarantor Agreement Form is an important legal document and should be completed with care. A Guarantor Agreement Form should ideally be completed in the following way:

Date – Insert the current date, which is the date on which this Guarantor Agreement is being signed.
Names and Addresses of Parties – Write out the full name of the Landlord and Tenant including their legal titles. For example, Mr. Harun Hashim Sue, a single person.
Signature of Landlord – The names must be signed by each landlord individually and the designation, Mr, Mrs, Ms, Dr, should be entered next to their name. Both tenants and landlords should write their full names as per their identity documents. In the event this document is being signed on behalf of a company, the name of the company must be entered, followed by the person’s name, designation and "for and on behalf of" the company.
Signature of Tenant – The full name of the tenant must be inserted, together with their identification number or passport number and their signature.
Full Address of Tenant – The complete physical address of the tenant including street number, name and suburb must be included. Their email address and mobile number must also be filled in.
Full Description of the Property – The full description of the property, including the unit number, building name, street number, name, suburb and province must be provided. The property should also be described as being fully furnished with furniture, braai, etc.
Residential Period – The starting and ending dates should be fully stated and specific.
Monthly Rental – The rental amount should be written out in full, followed by the numerical version, e.g. R9 000. The rental payment conditions should also be clearly laid out, i.e. where it should be paid, and when, which may be the due date and time as set out in the lease.
Security Deposit – The security deposit must be inserted, both as a total amount and per month.
Twelve Month Guarantee Period – The full twelve month period must be inserted in addition to the three additional months. It should also be stated that the agreement will cease to be applicable if the lease is cancelled before those twelve months have expired unless to broken by an act of a party to the lease agreement.
In the case of a company being the landlord, a resolution signed by all directors must be attached to the guarantor agreement.
Care should be taken not to correct any mistakes on this document, this must be redone on a new page, in its entirety.

The Guarantor Agreement may also be signed by a person who does not reside in South Africa but would like to assist the landlord in this capacity.
In this case, the document can be received by fax or e-mail and must be emailed back to you after it is duly signed. In this case the person will administer the agreement and provide clear guidance on the requirements of the Guarantor Agreement to be inducted smoothly.

Legal Responsibilities of Guarantors

Signing a guarantor agreement form carries many legal implications for the guarantor. Once signed, the guarantor becomes severally liable which means that the lender can hold the guarantor entirely responsible for the debt. It means that if the borrower fails to make payments, the lender may require the guarantor to repay the debt even though the borrower receives the benefit under the loan agreement. Further, the lender may pursue the individual(s) who signed the personal guarantees without initiating action against the borrower itself. This is important because if the borrower fails to repay the loan, this can be due to the poor financial health of the borrower, and so the lender may wish to recover its money from the personal guarantee rather than from the company which in its own right has no way of repaying the loan. For example, suppose M Ltd wishes to take out a loan from P Ltd, but P Ltd is concerned about M Ltd’s financial position and does not want M Ltd to repay any debt it owes to P Ltd. As a result, P Ltd requires that the directors of M Ltd sign personal guarantees which would mean that the directors are liable for any default in payments, rather than the company itself. Thus, there is no way that the directors can take personal advantage of the guarantee because even though the guarantee is over their personal assets, the benefit of the loan always travels to the borrowing company. And therefore, the person who has signed the personal guarantee is treated as a surety and is subject to the "personal benefit" rule which will be dealt in more detail below.
If the lender successfully recoups the money owed, and the guarantor has made repayment under the loan, the guarantor would be entitled to bring a claim against the borrower to recover the amount of any sum that has been paid under the guarantee. In the above example, M Ltd will become the creditor of the directors and will be entitled to recover the money paid to P Ltd under a guarantee. Whilst Ms. B is not entitled to reduce her liability under the Guarantor Form as she has given a continuing guarantee, Quiller will be able to bring a counterclaim against M Ltd for the benefit they received under the Guarantor Form. When M Ltd failed to pay back the loan it owed to P Ltd, P Ltd would have exercised its right of recourse under the Guarantor Form against Ms. B. Therefore, M Ltd would be considered to have received the benefit under the continuing guarantee and thus Ms. B would be able to set off that benefit against the full sum she owes under the guarantee.
If there’s a guarantee and a trust deed in place, it is presumed that the lender has taken the benefit as the lender has possession of the guarantee. It also depends on whether the lender has satisfied the lender’s judgment against the company through the trustee. In this situation some courts have been tolerant if the lender has not satisfied the lender’s judgment against the company.

Guarantor Versus Co-signer

Individuals often mix up the terms guarantor (or guarantor agreement form) with co-signer. A co-signer is someone who agrees to take responsibility of a debt obligation if you fail to pay. A guarantor is someone who backs your loan with a promise to reimburse the lender or creditor in case of default. So, if you can find someone who is willing to be a co-signer versus a guarantor, then that might be a better option for you. A co-signer usually has to provide their financial information to a bank or other creditor so that the creditor can analyze both your creditworthiness and the credit worthiness of the co-signer. Usually a person agrees to accept a co-signer only after they have done their due diligence to access both parties financial health.
The terms of a guarantee are usually more expensive than a co-signature. Usually a guarantor receives a fee for providing this service. The fee may be a percentage of the total loan amount , and it may tie in with other factors such as the duration of the loan. Fees are common, as they are simply the cost of doing business in some regions. If a person agrees to be a guarantor for free, it is usually because they know the other party extremely well and trust that they will make the payments in full to keep the other party from having to pay.
A co-signer can be used to help a person whose credit rating is low. If your credit history shows frequent late payments, the lender may require a co-signer to help balance the risk. This makes them attractive to some people. A creditworthy co-signer may be able to negotiate better rates on loans than the borrower would have received otherwise.
Whether for a guarantor agreement form, a co-signer or another financial agreement, it is important that you understand your personal responsibility. If you default on a loan, it does not matter whether someone co-signed or guaranteed the loan, your credit will be affected.

When and Why Do You Need a Guarantor?

There are many instances when you may need a guarantor. The most obvious case is when applying for a loan. In fact, if you walk into a bank asking for a loan, one of the first questions you will get asked (if you are not asking for a student loan) is ‘do you have a guarantor?’. There is a very good reason for this. Banks and lenders are not going to lend money to someone they do not trust will be able to pay it back. Single person income and no assets make you a risky borrower if something goes wrong. A guarantor would remove this risk from the equation. A guarantor is another individual or entity that agrees to repay any unpaid amounts owed under the loan if you cannot. This way, if the bank has security over the asset itself, they will still have the ability to recover the outstanding amount owed to them. Other situations where a guarantor may be required is in a lease agreement. Landlords will want to see evidence that they can rely on their tenants to pay the rent. A tenant may live up to several years before an agreement is terminated. Therefore, landlords commonly require some assurance that they will get paid. Again, a guarantor gives them just that. Someone who is either financially more secure, or who has a history of paying their bills on time, can give both the landlord, and themselves, peace of mind that the lease will be paid whether the tenant stops paying or not. Similarly, suppliers of goods may also require a guarantee that, if the customer chooses not to pay, then they (the guarantor) will. You may wish to avoid ‘close personal friends’ signing a guarantee, as you don’t want to be having a conversation with your parents whenever you miss your credit card bill (and the $800 dress you bought on it). That said, No Limit will always recommend that anyone entering into a guarantee receives independent advice from a legal practitioner. This will ensure everyone understands the implications of signing a guarantee form, particularly the risks involved.

A Sample Guarantor Agreement Form

A sample guarantor agreement form may read as follows:
Guarantor Agreement
This Guarantor Agreement ("Agreement") is entered into as of [Insert Date] by and between [First Mortgage Company] (hereinafter referred to as the "Mortgagee"), whose address is [Insert Address], and [Name of Company], a New York Corporation with an office located at [Insert Address] (hereinafter referred to as the "Guarantor").

Guarantor hereby absolutely and unconditionally guarantees and promises to pay to the Mortgagee the full and prompt payment of all principal, interest, late charges, and all other sums and amounts due and to become due upon a mortgage, deed to secure debt, or other agreement evidencing a loan (the "Note") from the Mortgagee to [Insert Individual/Company Name] (the "Obligor").
The Guarantor agrees that this Guaranty is independent of any obligations or liabilities of the Obligor to the Guarantor except as required by law, and that the guaranty herein is not conditioned upon the obligation of the Obligor to the Guarantor. The Guarantor further agrees that the obligations of the Guarantor hereunder shall remain in full force and effect without regard to the enforceability or legal effectiveness of the obligations and liabilities of the Obligor.
It shall not be necessary for the Mortgagee, at any time or times hereafter, to initiate suit against the Obligor or exhaust any remedies in favor of the Mortgagee against the Obligor or any third person, including any other guarantor, after default, before enforcing payment of the Guaranty.
Upon the written request of the Mortgagee, the Guarantor shall make direct payment to the Mortgagee, of all or any part of the indebtedness or liabilities guaranteed by the Guarantor hereunder. The proceeds of any payment or collection, however realized, from the Guarantor, in whole or in part, shall not affect or diminish the liability of the Guarantor under this Guaranty.
This Guaranty shall remain in full force and effect as long as the Guarantor is liable to the Obligor (the "Obligations") and until all of the Obligations have been paid in full. No delay or forbearance by the Mortgagee in exercising any right, remedy or privilege hereunder, shall operate as a waiver of any of the terms and conditions of the Guaranty.
This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, assigns, and personal representatives.
This Guaranty shall be governed by and construed under the laws of the State of New York.

How to Find the Right Guarantor

A great method of encouraging a prospective tenant to show he is genuine about the deal is to insist that a guarantor be provided. The role of this guarantor is to sign a separate arrangement with you, so that if your new tenant fails to pay rent or damages etc, the guarantor would pay you the money owed. The guarantor is in effect vouching for the tenant by agreeing to enter an arrangement with you that would put the guarantor’s credit rating at stake by virtue of their relationship with the tenant. In many cases you may not even need to contact the guarantor if they are paying their way, but when things go wrong, it is imperative that this person is financially capable and legally bound to pay what they owe on behalf of your tenant.
The criteria for selecting a suitable guarantor:
This is a really important part of the process when selecting a tenant. In order to ensure that the relationship is watertight , without the tenant being given the freedom to offload responsibility, it is important to choose a guarantor who:
It is also vital that you vet your guarantor carefully prior to accepting them as a guarantor. This should involve:
In addition to requiring the guarantor to be linked to the tenant by association, it is also important to ensure they have enough financial clout to meet the obligations of the tenant. Carefully assessing your chosen guarantor prior to entering into any agreement is the best method of giving you peace of mind that should your tenant default on payments, your guarantor will be financially able to make good for them.