Question

Do guarantor agreements need to be executed as a deed?

by | 19 Jan 2018

I recall that guarantor agreements can be a simple contract but there would need to be consideration and perhaps there are legitimate reasons that they should be a deed?

Answer

1 Comment

  1. guildy

    In order for a contract to be a valid contract there must be offer, acceptance and consideration. Consideration must be something of economic value (i.e. not an emotion).

    If you think about renting a flat, we advertise a property (offer), tenant decides to take the flat (acceptance) and rent is payable (consideration). The flat letting is therefore a valid contract. (Even without rent it can be consideration because we may want a caretaker for example).

    However, now think about a guarantor: we ask them to be a guarantor (offer) and the guarantor accepts (acceptance) but where’s the consideration? We provide no service in return for anything. There is just a liability (that’s not even their liability). There is no consideration.

    A deed can be a few things and one thing it can be is a contract without consideration. As such, it’s always best to ensure a guarantee is made as a deed (and witnessed appropriately).

    However, there is a possible get out. The argument is that the consideration for the guarantor is the fact that we will only grant a tenancy if there’s a guarantor. The guarantor may be a parent wishing for their daughter or son to move on and so there is economic value and consideration. In this case the guarantee must be signed before the tenancy because once a tenancy has been granted, there would be no consideration in this case. Our guarantee agreement explains there is this consideration so that if by mistake the deed wasn’t correctly signed or witnessed there is a fall back position. However, if it’s always done as a deed it should never go wrong.

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