A Rental Cosigner Agreement is a contract incorporated into a lease agreement between a landlord and a cosigner for the tenant (also known as a lease guarantor). The cosigner takes on full responsibility for any financial obligations the tenant fails to complete, such as making timely rent payments or paying for damage to the rental property.
What Is a Rental Cosigner?
A cosigner is someone who signs the terms of a lease alongside the actual tenant. Since a lease is a binding contract, this means the cosigner shares with the tenant all responsibilities for the rental property.
These responsibilities are not split between the cosigner and the tenant. Both are 100% liable to keep 100% of the lease terms. For instance, if the tenant defaults on rent, the landlord can (and often does) sue only the cosigner to recover the entire unpaid amount.
Are There Any Special Requirements for Being a Cosigner?
There are no particular legal requirements to be a cosigner other than being an adult who’s competent to sign a contract.
While not legally required, landlords usually demand good finances from a cosigner. The purpose of a cosigner is to provide extra financial security for a landlord. Cosigners are thus often screened even more strictly than potential tenants. They almost always have to prove income and good credit.
Since cosigning a lease risks tens of thousands of dollars in financial liability, there’s usually a strong relationship of trust between the cosigner and the tenant. Close friends and family members are the most common people to see cosigning a lease.
Why Use a Rental Cosigner Agreement?
The main use of a rental cosigner agreement is giving a landlord peace of mind about a rental applicant who can’t prove enough financial stability.
A cosigner does NOT mean an applicant is irresponsible or doesn’t have proper financial means. It only means a landlord seeks more assurances that there won’t be financial problems with the rental. These are some common reasons a landlord may request a cosigner for a lease:
- Unemployed or Inadequate Income – The applicant may be temporarily unemployed or below a landlord’s income thresholds for a particular rental property.
- Inconsistent Cashflow – The applicant may have employment that makes a steady income hard to gauge. This is often the case with self-employed applicants as well as freelancers, seasonal workers, and some client-based jobs in fine arts and similar fields.
- Poor Credit Score – An otherwise qualified applicant may have a poor credit score. Even if there’s a good explanation for it, a cosigner may be what’s needed to assure the landlord that past financial issues remain in the past.
- No Credit History – Many potential tenants do not have a credit history. This can be for a variety of different reasons. College students, entry-level workers, and immigrants may all have little or no credit history.
Financial uncertainty about a potential tenant is a major landlord concern, and a major factor in rejected applications. A cosigner often puts these fears to rest, and increases the potential pool of qualified applicants from which a landlord can choose. Cosigners help a landlord fill vacancies quicker, with better tenants.
What Are the Risks of Being a Cosigner?
While being a cosigner is often a rewarding role that helps someone secure housing, there are clear risks. These include:
- Financial Liability – Many people make a Rental Cosigner Agreement and never hear from the landlord again because the tenant makes timely rental payments. However, if the tenant defaults on rent, the cosigner will owe all unpaid rent to the landlord. This can be tens of thousands of dollars in some situations.
- Impact on Credit Score – A cosigner may not always have funds available to pay the full amount of a tenant’s rent default. If a cosigner struggles with a landlord’s sudden demand for payment, this could negatively impact the cosigner’s credit score for years to come.
- Lost Time – Resolving another person’s financial issues is a messy process that takes time. This is particularly so if there’s a lawsuit or other dispute about the owed amount. Even when there’s no actual default and a landlord is just being unreasonable, it takes time for a cosigner to figure things out.
- Strained Relationships – Cosigners are almost always friends or family of the tenant. When someone cosigns, the tenant’s financial problems become those of the cosigner with respect to the rental property. This can put a huge strain on relationships.
Are There Risks To a Landlord When Using a Cosigner?
There are no extra financial risks to a landlord when using a cosigner. The landlord doesn’t take on any additional liabilities by using a Rental Cosigner Agreement.
Reducing the Risks of Cosigning
Cosigners are often interested in reducing the real and significant risks they take on by executing a Rental Cosigner Agreement. These are some things which can help mitigate the most common issues:
- Discuss the Details – If the cosigner discusses the potential impact tenant actions might have, this can help make sure there’s a common understanding. The tenant and cosigner can even make a plan to ensure proper management of the rental.
- Monitor the Tenancy – In some situations, it can be helpful for a cosigner to check in with the tenant and ensure timely rent payment and no difficulties with the landlord. It’s important for a cosigner to do this with sensitivity, as some tenants may find this intrusive.
- Assist As Necessary – When there are issues, a proactive approach reduces the risk of an expensive or acrimonious struggle with the landlord. A cosigner who assists readily can often nip trouble in the bud.
What To Include in a Rental Cosigner Agreement
A Rental Cosigner Agreement is usually attached to a lease agreement as an addendum. These are the typical contents:
- Type of Addendum – The heading and opening should state that it is a Rental Cosigner Agreement.
- Date the agreement 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.
- Acknowledgment – The cosigner acknowledges receipt and review of the full lease agreement, and takes on responsibility for all related terms and conditions. (While the focus of a Rental Cosigner Agreement is on the rent payments, liability extends to things like cost of property for damage and lawsuit judgments.)
- Financial Responsibility – The cosigner outlines and agrees to the relevant financial responsibilities.
- Entirety of the Lease Term – The cosigner agrees that their financial responsibilities extend for the entire lease term, including extensions, renewals, and holdovers.
- Occupation of Premises – The cosigner acknowledges they obtain no privileges of tenancy from the agreement, such as occupying the rental property. A cosigner is not a co-tenant, regardless of who’s paying rent.
- Notification – The landlord must provide immediate notification to the cosigner of any violations, lawsuits, or claims arising out of the lease agreement.
- Assignment or Subleasing – A cosigner is still liable for the entire lease and Rental Cosigner Agreement, even if the tenant lawfully assigns the lease to another person or subleases the rental property.
- Termination or Modification – Process and scope for any termination or modification of the agreement.
- Governing Law – The law which will apply to the Rental Cosigner Agreement. This is usually specified to be the same jurisdiction as the lease, to avoid problems of legal interpretation.
- Landlord’s signature and date.
- Cosigner’s signature and date.
As with the original lease, all parties should receive a signed copy of the Rental Cosigner Agreement. The addendum is legally incorporated into the original lease when signed, and should be kept alongside.
