What are the Risks of Signing Surety?

What is Surety?

Oftentimes in the case of students or newly qualified individuals looking to rent their first property, the only way to get the Landlord to accept their application is to get a relative or friend to sign as surety on their behalf.  This provides the Landlord with some comfort that the risk will be covered in the event of a default.  A surety is thus a form of guarantee that someone who is creditworthy will cover the debt, if required, for someone who is not (yet) creditworthy.

In terms of a surety agreement, there are three separate parties; the Landlord (the creditor), the Tenant (the principal debtor) & the Surety (the co-principal debtor).

What is the Role of the Surety?

Essentially the Surety takes on the role of a co-borrower, being held liable in the same manner as the Tenant and for the full debt that the Tenant may incur. The Surety uses their healthy credit rating/record for the Tenant’s gain & agrees to accept full responsibility & liability for the payment of the rental amount should the Tenant, for whatever reason, not meet their rental obligations in terms of the lease.

Is Surety Binding?

Suretyship is not always automatically cancelled on payment of the debt. In the most common suretyship agreements the liability is unlimited & binding, despite termination or cancellation of the lease agreement, requiring the Landlord to formally release the Surety as co-principal debtor in writing, even in the case of the Surety’s death or disability.  With regards to a lease, the liability will however be limited to the scope of the lease agreement; in other words, the Landlord cannot hold the Surety liable for any debts not related to the lease agreement.

What are the consequences should the Tenant default?

The Surety is responsible for the rental amount and any other amounts (such as water and lights) due & owing to the Landlord by the Tenant as stipulated in the lease agreement. Should the Tenant default on their rental payments, the Landlord is permitted to collect the outstanding balances directly from the Surety.

It is imperative that the Surety understand & know full-well the technicalities & consequences of signing a binding suretyship agreement, & the affect that it can have on the Surety’s financial future.  Signing as Surety for another is a massive commitment!