A Rental Cosigner Agreement is a legal contract incorporated into a Lease Agreement between a landlord and a tenant’s cosigner (also known as a lease guarantor). The cosigner agrees to be fully responsible for any financial obligations the tenant fails to complete such as making timely rent payments or paying for damages to the rental property.
Why Use a Rental Cosigner Agreement?
If a landlord is considering renting out a property to a tenant that has limited or negative financial information on their application, one option for the landlord is to request a cosigner for the lease agreement.
A cosigner is a person that agrees to make rental payments and is responsible for any violations of the lease agreement that the tenant fails to address. This is usually a person that has a close relationship with the tenant and must be someone financially stable. Here are some specific situations when a landlord should consider requesting a cosigner as part of the lease agreement:
- Unemployed or Inadequate Income – The applicant may be currently unemployed or does not meet a landlord’s income thresholds for a particular rental property. If the tenant’s other qualifications are strong, a cosigner may ease any financial issues if this is the only concern.
- Self-Employed – The applicant may have a steady job but it’s hard to gauge their actual earnings because they are self-employed. If this is the case, a cosigner may be a good option.
- Poor Credit Score – An otherwise qualified tenant may have a poor credit score. A landlord can ask them to explain the reason for the poor credit score. They may be able to provide a reasonable explanation and show what steps they have taken to improve their financial issues. If there are no other red flags a qualified cosigner may resolve these concerns.
- No Credit Score – Several qualified tenants do not have a credit history. Examples include college students or individuals that are recently employed. Having a cosigner in this situation can also give the tenant one of their first opportunities to build credit.
If these, or similar scenarios arise, the landlord has the right to reject the applicant and send them a Rental Application Rejection Letter. That being said, there are a couple of substantial benefits for landlords that decide to use a cosigner. Those include:
- Financial Security – Having a jointly responsible cosigner gives the landlord financial security if the tenant becomes unreliable or irresponsible. For instance, if the tenant fails to make their rent payment, the landlord can pursue that money from the cosigner.
- Quickly Fill Vacancies – A landlord can fill a vacancy quicker if they have otherwise qualified applicants that simply do not have a strong financial situation. Instead of continuing the process of screening additional tenants, they can approve a lesser qualified applicant if they can provide a reliable cosigner.
Remember, a cosigner can only help the landlord with certain potential issues with a tenant. Having a cosigner will not reduce any concerns about an individual’s behavior. For instance, a qualified cosigner will do nothing to mitigate a tenant that is unneighborly or the subject of noise complaints.
In addition, you must screen your cosigners as well. A landlord should know exactly who is going to be responsible if the tenant fails to fulfill their lease obligations. The cosigner should have the ability to handle the obligations of the lease agreement in addition to their other financial obligations.
What to Include in a Rental Cosigner Agreement
A Rental Cosigner Agreement is an additional addendum the tenant must sign when requested by the landlord, usually due to financial concerns. This addendum is incorporated into the original lease agreement and should include the following:
- Type of Addendum – The heading and opening should state that this is a Rental Cosigner Agreement
- Date the agreement is being signed and goes into effect
- Landlord’s name
- Landlord’s business address
- Cosigner’s name
- Cosigner’s address
- Date of the original lease agreement
- Tenant’s name
- Tenant’s rental property address
- Introductory information about the addendum and the original lease agreement it is incorporating
- Acknowledgment – This section is an acknowledgment by the cosigner that they have received and reviewed the entire lease agreement and agree to be fully responsible for fulfilling all terms and conditions of the lease agreement. The focus is usually on the rent payment but it also extends to things such as payment for damages and potential lawsuits
- Financial Responsibility – This section specifically outlines the financial responsibilities of the cosigner
- Entirety of the Lease Term – This section is an acknowledgment by the cosigner that they agree to these responsibilities for the entire lease term and any extensions or renewals. These responsibilities also extend if the tenant becomes a holdover tenant
- Occupation of Premises – This section prohibits the cosigner from moving into the Premises as a tenant or guest. This prohibition is regardless of whether the cosigner is actively making the rent payments
- Notification – In this section, the landlord agrees to provide immediate notification to the cosigner of any violations, lawsuits, or claims arising out of the lease agreement
- Assignment or Subleasing – This section informs the cosigner that, even if the tenant is allowed and decides to sublease or assign the Premises, they are still responsible for all terms in this agreement and the lease agreement
- Termination or Modification – This section gives the terms upon which this agreement will or can be terminated or modified
- Governing Law – The law of the lease agreement will also apply to this agreement
- Landlord’s signature and date
- Cosigner’s signature and date
Just like with the original lease agreement, all parties should have a signed copy of this addendum. The addendum is now part of the original lease agreement and should be kept with it.
If a tenant is unable to obtain a qualified cosigner, a landlord can deny renting to them. The landlord also has the option of taking other action such as charging a higher rent, asking for a certain number of months’ rent in advance, or requesting a higher security deposit.
What are the Risks of Being a Cosigner?
Being a cosigner can be a rewarding experience. If the person making the request is a close family member or friend, they can have the satisfaction of helping someone they care for to secure a place to live. That being said, there are some clear risks for cosigners. Those include:
- Financial Liability – Many cosigners sign this agreement and they never hear from the landlord again. The tenant makes their payments and there is nothing more they need to do. However, if a tenant can no longer make their rental payments the landlord will seek payment from the cosigner. This may be a strain on the cosigner, depending on their current financial obligations.
- Impact on Credit Score – During a tenancy, a cosigner’s financial situation may change as well. If a tenant fails to make their payments and the cosigner now struggles to make those payments as well, it will likely harm their credit score which could cause issues for years to come.
- Lost Time – If the cosigner has to handle any issues due to a tenant’s violation of the lease agreement, the cosigner will lose precious time to properly resolve the issue. This could be further exacerbated if, for instance, there is legal action taken against the tenant and cosigner.
- Strained Relationships – Usually, a cosigner is a close family member or friend. If the tenant is irresponsible with their lease obligations it can cause a serious strain on their relationship. This could be caused by anything from little issues of constantly having to remind the tenant to pay their rent to something as significant as resolving a legal dispute.
Because of these potential issue, when someone agrees to be a cosigner they may want to take some of the following actions:
- Discuss the Details – The cosigner should have a conversation with the tenant so they are well aware of the potential impact their actions might have on their cosigner. The tenant and cosigner can even discuss a plan to ensure the responsibility of the lease agreement is properly managed
- Monitor the Tenancy – This may only be necessary for some situations but, in those situations, it might be helpful for a cosigner to check in with the tenant to make sure they are paying their rent on time and that there are no other issues that have arisen.
- Be Willing to Assist – As a cosigner, it is better to assist the tenant than to let a problem grow. At the end of the day, the cosigner is responsible to the same extent as the tenant. It is better to handle the issue early rather than letting it become a bigger problem later.
