In this guide, we’ll discuss how a rental cosigner agreement can turn the borderline applicant into a reliable, low-risk tenant. We’ll discuss what a cosigner is, the legal considerations for landlords, why property owners use them, and the key points to include in a cosigner lease.
What is a rental cosigner?
A cosigner is someone who signs a lease agreement alongside the actual tenant. Cosigners, also called guarantors, share all responsibilities for the rental property with the tenant.
When landlords accept a renter with a cosigner, they add a rental cosigner agreement to their lease. It states that the cosigner is liable if the tenant can’t meet their financial obligations. For example, a cosigner may have to make timely rent payments or pay for any property damage.
Keep in mind: The cosigner and tenant don’t split the lease responsibilities 50-50. Instead, both are fully liable to keep 100% of the lease terms. For example, if a tenant defaults on their rent, the property owner can only sue the cosigner to record the unpaid balance.
Are there any special requirements for being a cosigner?
There aren’t any specific requirements to be a cosigner, other than being an adult who meets your criteria. Most of the time, it’s a parent, family member, close friend, or a spouse who doesn’t live with the applicant. It’s less common, but sometimes renters use professional contacts as their guarantor.
When reviewing a cosigner’s qualifications, landlords usually screen them to ensure they have the income and credit to provide the extra financial security landlords are seeking. If you’re considering accepting a cosigner, make sure they demonstrate the following:
- Stable income
- Good to excellent credit
- Low debt-to-income ratio
- Solid rental or homeownership history
With these qualifications in place, the cosigner should be able to cover the lease costs if needed.
Legal Considerations for Rental Cosigner Lease Agreements
Before entering into a cosigner lease agreement, property owners should understand how federal and state laws apply. There’s no single law governing these rental contracts, but fair housing laws and state-specific regulations apply. Here’s what you need to know:
Fair Housing Act (FHA): Landlords have to comply with this federal law when screening cosigners. As a rule of thumb, follow the same rules you would when considering applicants. For example, you can’t discriminate against cosigners based on these federally-protected characteristics:
- Race
- Color
- National origin
- Religion
- Sex
- Familial status
- Disability (Fair Housing Act)
As a best practice, ensure your decision-making process complies with the same denial process for all cosigners.
Fair Credit Reporting Act (FCRA): If you deny a cosigner based on information from their credit report, this federal law requires you to send them an adverse action notice stating:
- The reporting agency’s name and contact details.
- An explanation of the cosigner’s right to dispute errors (Fair Credit Reporting Act).
State landlord-tenant laws: Some states have specific laws regarding cosigner rental agreements. For example, California law states that if a tenant and landlord alter the lease without the cosigner’s consent, the landlord must release the guarantor from liability (Cal. Civ. Code § 2819).
Since these laws vary by state, we recommend checking local laws and consulting a trusted real estate lawyer for specific information.
4 Reasons to Use a Rental Cosigner Agreement
The main reason property owners use cosigners is to help applicants meet their criteria and provide additional financial security for a lease. Here are a few examples of situations where adding a cosigner could be a good idea:
The applicant is currently unemployed or has inadequate income: Maybe they’re in between jobs, or they’re not making enough to have an ideal rent-to-income ratio. Landlords usually require cosigners in these situations to help cover the financial basics.
The renter has inconsistent cash flow: Perhaps the applicant is self-employed, a freelancer, or a seasonal worker. Since these professions can make a steady income harder to gauge, a cosigner can provide the cushion they need.
Their credit score is below your minimum requirement: Even the strongest applicants can have a poor credit score. A cosigner may be what’s needed to meet the landlord’s credit benchmark.
It’s their first time renting: Many applicants don’t have a credit history, especially if you’re listing in a college town or a location with many young renters and entry-level workers. Adding a responsible third party with a solid rental history helps reduce the risk.
No landlord wants to stress about whether their tenant will fulfill their end of the lease agreement. Instead of rejecting applications because of a few missing pieces, cosigners can increase the pool of qualified applicants and help you fill vacancies quickly.
What are the risks of being a cosigner?
Being someone’s cosigner is often a rewarding role. In most cases, you’re helping someone close to you secure housing, build up a positive rental history, and take the following steps in their life. However, there are clear risks involved, including:
Financial liability: Most cosigners sign the contract and never hear from the landlord again because the tenant makes timely rental payments. But things don’t always go so smoothly. If the tenant defaults on rent, late fees, or other owed balances, cosigners are liable. In some situations, the amount owed can reach tens of thousands of dollars.
Impact on credit score: Sometimes, cosigners don’t have the full funds available to cover the balance they owe the landlord. If a cosigner can’t pay and the tenant reports them to the credit bureau, it could affect their credit report for years.
Legal disputes: If the situation escalates into a lawsuit, cosigners have to invest time and money to resolve the case.
Strained relationships: When a family member or friend cosigns on a lease, the tenant’s financial problems become their own. These issues can put considerable stress on the cosigner and their relationship with the tenant.
Before deciding to be a cosigner, always consider your own situation first. Make sure you can handle the risks of taking responsibility for someone else’s tenancy.
3 Ways to Reduce the Risks of Cosigning
One of the best ways for cosigners to avoid these pitfalls is to stay in close communication with the tenant. Having transparent conversations about the tenant’s ability to pay rent can help you catch minor issues before they spiral into larger problems.
Follow these three tips to help you avoid issues:
Discuss the details: At the very beginning of the agreement, talk to the tenant about the potential impact of their actions to create a common understanding. Some tenants and cosigners even make a plan to ensure the tenant properly manages the rental.
Monitor the tenancy: In some situations, it can be helpful for cosigners to check in with the tenant to make sure they’re paying rent on time. Some tenants may find this intrusive, so cosigners should approach the topic with sensitivity.
Assist as necessary: Taking a proactive approach can help nip issues in the bud. If problems arise, try to resolve them early to prevent the situation from escalating.
Are there risks to a landlord when using a cosigner?
As the property owner, you don’t assume any additional risk when renting to a tenant with a cosigner. Instead, using a rental cosigner agreement adds financial protection.
However, cosigners can’t guarantee a tenant’s good behavior. Noise issues, cleanliness, or disruptive activities can still occur. Beyond finances, it’s still up to you to manage the tenancy responsibly to stay on top of potential behavioral problems.
Use Digital Screening Tools for Both Cosigners and Tenants
Thorough tenant screening is the best way to stay ahead of potential issues and safeguard your investment.
Digital tools let you verify the cosigner’s income, identity, and other essential details quickly and easily. Some platforms even keep the process compliant with your local laws, so you can fill your vacancy with confidence and minimize potential disputes.
What To Include in a Rental Cosigner Agreement
Landlords usually attach cosigner agreements to the original lease as an addendum. Here’s what the document should include:
Type of addendum: State in the header and introduction that it’s a cosigner agreement.
Dates: Include the date the agreement goes into effect and the date of the original lease agreement.
Landlord information: Add the property owner’s name and business address.
Cosigner information: Include the cosigner’s name and address.
Tenant information: State the tenant’s name and the rental property’s address.
Acknowledgment: Include a clause clearly stating that the cosigner acknowledges the full lease agreement and takes on responsibility for all related terms and conditions, including rent, property damage, and lawsuit judgments.
Financial responsibility: An additional statement where the cosigner agrees to their financial responsibilities.
Entirety of the lease term: Clarify that the cosigner agrees to extend their financial responsibility throughout the entire lease term, including extensions, renewals, and holdovers.
Occupation of premises: The cosigner acknowledges that they do not obtain any tenancy rights from the agreement, such as the right to occupy the rental property. Remember, a cosigner isn’t a co-tenant, even if they’re the one paying rent.
Notification requirements: Landlords must immediately notify the cosigner of any violations, lawsuits, or claims.
Assignment or subleasing: Cosigners remain fully liable for the entire agreement, even if the tenant lawfully assigns the lease to another person or sublets the rental property.
Termination or modification: Outline the process and scope for terminating or modifying the lease.
Governing law: Specify which state’s law will apply to the agreement. In most cases, it’s the same jurisdiction as the original lease.
Dated signatures: Close the document with both the landlord’s and cosigner’s signatures and dates.
Signing the addendum legally incorporates it into the original lease. Always retain a copy for your records alongside the main rental contract.
Simplify the Process with a Rental Cosigner Agreement Template
Streamline the process of adding a cosigner to your lease by using our free cosigner rental agreement template at the top of this article. It’s a printable PDF that’s easy to fill out. Our helpful template ensures you include all essential information to create a thorough, complete, legally compliant addendum to start the agreement off right.
