Conditional Offer of Tenancy

Traditional property management practices screen rental applicants to evaluate potential financial risk to business operations. Of primary importance is an applicant’s potential risk of rent default, evaluated on a history of the applicant’s management of financial obligations and a current, stable source of income. If there is potential business risk of rent default, but the landlord is willing and able to accept such a risk with conditions, a landlord may extend a conditional acceptance and offer of tenancy to the applicant. The conditional offer requires the applicant to provide a qualified cosigner.

With a conditional offer, approval of the applicant as the new tenant is contingent upon the cosigner being financially qualified and fully screened to the landlord’s rental standards. If the potential cosigner cannot qualify to required standards, the conditional offer of acceptance would be withdrawn since the contingency could not be met.

While landlord and applicant may agree that a cosigner will be used as security for the tenancy, the applicant has the responsibility to provide the qualified cosigner. The landlord’s decision to accept the cosigner satisfies the contingency requirements and the offer is complete.

A qualified cosigner must be willing to serve as the financial guarantor for the prospective tenant. Most importantly, a cosigner must have a thorough understanding of the legal responsibilities that are required of a cosigner before signing the cosigner agreement.

The proposed cosigner should carefully consider and thoroughly evaluate certain issues before agreeing to act as a cosigner for the prospective tenant. A cosigner is usually a family member or friend with a close personal relationship to the applicant who is willing to help the applicant get approved for tenancy. The personal relationship of trust between cosigner and applicant can be a motivator for the applicant to act responsibly in fulfilling rent obligations and lease terms and conditions so as not to take advantage of his friend or relative.

Lease default by the applicant once installed as a tenant has serious consequences for the tenant and his cosigner. When the lease agreement is signed by the new tenant, the cosigner is likewise committed to fulfill his cosigner obligations for the length of the lease term. A cosigner remains financially responsible for the entire term of the tenant’s lease agreement and is not released from his financial obligation until all lease terms and conditions have been met.

It is possible the cosigner will never have to fulfill his financial commitment if everything goes according to plan. However, if the tenant defaults, e.g., pays rent late, fails to pay rent, or defaults on any material condition of the lease, the landlord can go directly to the cosigner to collect what is due according to terms of the lease agreement. If both tenant and cosigner default on their obligations, the landlord can file a lawsuit against both parties to collect unpaid rents and damages.

The cosigner agreement should designate the tenant as the cosigner’s “agent for service of process” and also state that the cosigner or guarantor is not entitled to service of any notices that might be served on the tenant or have any other rights of a tenant. By doing this, the landlord need only serve notices or lawsuit complaints on the tenant and does not have to personally serve notices or complaints on the cosigner. It will be easier to serve the tenant and have the tenant notify the cosigner about notices and complaints filed on the tenant. Failure of the tenant to notify his cosigner will allow the landlord to obtain a default judgment against the cosigner.

Subject to state law, lease agreements should always contain clauses prohibiting subletting or assignment of the rental premises without the landlord’s written permission. Cosigners should always be held responsible by the lease agreement and the cosigner agreement if the tenant is permitted to sublet or assign his leased premises during the term of the guaranty.

When there are multiple tenants, cosigners should, when possible, be made jointly and severally liable for the lease rather than only for obligations of the co-tenant who was required to provide a cosigner. A landlord is most likely to collect from the tenant who is best financially qualified and/or the one who is easiest to serve with a lawsuit if some of the co-tenants cannot be located.

An adequate cosigner agreement is most often a separate document that is attached to the lease agreement. The cosigner agreement should reference the named lease agreement, including identification of the rental premises, all parties to the agreement, and date of execution. It is best to require a cosigner who lives in the same state as the rental property in order to avoid having to collect a judgment in another state.

Having a formal, written cosigner agreement is important to emphasize the legal obligations of both cosigner and tenant and what the consequences will be if the tenant defaults. A cosigner should be sure to read and understand the lease agreement and the cosigner agreement before signing the documents. By his signature the cosigner acknowledges his understanding of the lease agreement, the lease terms and conditions, and accepts responsibility for fulfillment of the lease including payment of rents, fees, deposits, other related charges and damages.

If the lease agreement is amended, renewed, or otherwise modified, it is advisable to require the cosigner to sign a new cosigner agreement containing lease modifications.

The language in the cosigner agreement should make it clear that:

  • The cosigner will not reside in the rental unit. The cosigner is only providing a financial guarantee and has no rights to tenancy or other type of occupancy.
  • The cosigner agrees to the landlord’s standard rental lease terms and conditions. In addition the cosigner agrees to submit a rental application, submit to the standard tenant screenings, and qualify to rental standards. Standard application and processing fees are required at time of application.
  • The cosigner is jointly and severally responsible with the tenant for any and all financial obligations of the tenant under the lease agreement including but not limited to rent, late charges, deposits, fees, or other charges as a result of damage to the rental property, and the full amount of any reasonable legal fees and other fee as applicable by statute and lease agreement for enforcement of any lease terms and conditions as required due to tenant’s default.
  • The cosigner acknowledges that the landlord has no obligation to give notice to the cosigner if tenant defaults.
  • The cosigner agrees to appoint the tenant as the cosigner’s agent for service of process in the event of any lawsuit that might arise from the lease agreement, releasing the landlord from any obligation to separately serve the cosigner directly.
  • The cosigner acknowledges the landlord may demand that the cosigner perform per the cosigner agreement in the event of tenant default without first using any of tenant’s security or other deposits.
  • The cosigner shall remain liable for the performance of any assignee or sub-lessee of the tenant unless expressly relieved by written termination of this condition by the landlord.
  • The prevailing party of any legal action brought by either party to enforce any part of the agreement will recover reasonable attorney fees, court costs, and other expenses associated with collection of a judgment.

While the use of a cosigner is a reasonable and adequate risk management tool in appropriate circumstances, the acceptance of financial responsibility by the cosigner may not guarantee the tenant will actually perform to his obligations. The threat of eviction is often a stronger motivation for the tenant to pay the rent and otherwise abide by the lease agreement. A tenant may be likely to default on his lease when he knows someone else will be made responsible for it. The tenant may be willing to risk the disapproval of the cosigner, even if the cosigner is a parent, rather than meet his rental obligations.

However, there can be significant psychological benefits to having a cosigner. The cosigner is most often a close relative and the tenant will usually wish to avoid having the cosigner notified about defaults, let alone be sued because of the tenant’s failure to pay the rent or other lease defaults. If the agreement is properly written, the landlord can go directly to the cosigner for unpaid rents or reimbursement for damages without having previously notified the cosigner that there were problems. The cosigner, despite his disappointment with the tenant’s default, will almost certainly pressure the tenant to perform as required under the lease.

With one major exception, a landlord has no obligation to offer conditional approval for tenancy contingent upon acceptance of a qualified cosigner. Under federal fair housing law, landlords must consider cosigners when an otherwise qualified disabled applicant having insufficient income to qualify on his/her own requests the use of a cosigner who is willing to pay the rent if needed. If the proposed cosigner is solvent and stable, federal law requires landlords to accept the applicant regardless of the landlord’s policy regarding cosigner qualifications.

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