Both in rental agreements between private individuals and in rental agreements between businesses, a guarantee is normally required. When can a guarantee be required, and what is the actual value of such a guarantee?

The starting point is Section 3-5 of the Tenancy Act, which states that it may be agreed that a security deposit shall be paid for rent owed, limited to a maximum of six months' rent. When renting a home, the security deposit shall be placed in a separate deposit account in the tenant's name. Alternatively, a guarantee may be agreed in accordance with Section 3-6 of the Tenancy Act. Section 1-2 of the Tenancy Act is mandatory when it comes to residential leases, but other arrangements may be agreed for commercial leases.

Does the warranty provide security?

Experience shows that in some cases the guarantee does not provide the security that is expected. This may apply, for example, in cases where:

• The guarantee has not been provided upon moving in.
• There is an error in the warranty document.
• There are subsequent changes to the contract.
• Tenant's payment default is not followed up correctly

When should the guarantee be provided?

It is normally stipulated that the guarantee must be provided before the tenant takes over the premises. Unfortunately, this is often overlooked. A lease agreement is drawn up with a takeover date some time in the future, and then the guarantee is forgotten. This constitutes a breach of the lease agreement, but it can be difficult to evict the tenant if they have already moved in.

Is the guarantee in accordance with the rental agreement?

It is important to remember that the guarantee must be in accordance with what has been agreed with the tenant. The guarantor cannot set new conditions. This is particularly important in a commercial relationship, where there is freedom of contract, whereas in the case of residential rentals, the content is largely determined by Section 3-5 of the Tenancy Act. The landlord must give notice if there are errors in relation to the agreement, otherwise it may be claimed that the text has been accepted. The guarantee must apply to the entire rental period and preferably a little longer, as it may take time before the tenant moves out and any damage is discovered.

When should you file a claim against the warranty?

Warranties often contain provisions stipulating that claims must be made within certain time limits. For example, some standard warranties have a clause stating that claims under the warranty will be forfeited if:

• The claim must be submitted within two months of the due date.
• Claims under the guarantee must be submitted to the bank no later than one month after each installment due date, otherwise our liability will lapse.

It is recommended that such guarantees be avoided, not least if the tenant goes bankrupt. This means that the landlord must monitor the situation and that claims against the guarantor may be lost if payment is deferred or special repayment agreements are entered into. It is not in the interest of either party that the landlord must invoke the guarantee for any payment default exceeding, for example, two months. The landlord will in any case have a duty to take action based on general loyalty in contractual relationships – but the deadlines are unclear if no special regulation has been agreed.

What about changes to the lease?

The guarantee is an agreement between the guarantor and the landlord, and the agreement cannot therefore be changed without the agreement of both parties. The simplest example is that if the landlord extends the lease, the guarantee will not automatically be changed accordingly without the guarantor's confirmation. The same applies if the leased area is changed.

What if the tenant goes bankrupt?

Sometimes the tenant's delay is due to payment problems, but the landlord can force payment by giving notice of eviction. Or, at the end of the tenancy, all outstanding amounts, including old claims, are paid. If the landlord goes bankrupt shortly afterwards, the estate may demand repayment (set-off). It may therefore be wise to wait for the return of the deposit. This applies to payments made later than three months before the due date. The rules apply regardless of whether the landlord was acting in good faith or not. If there is a risk of bankruptcy, it may be wise to obtain payment from the deposit and not from the tenant.

Guarantee from other companies in the group

Landlords are sometimes offered guarantees from other companies in the group. These should be carefully considered, because if the entire group performs poorly, such a guarantee will be of little value.

What should you watch out for?

There must be a clear reference in the lease agreement that the guarantee shall secure all claims the landlord may have against the owner under the contract, including maintenance and return of the property.
The guarantee should not be terminable. It should apply for the entire lease term plus three months, without notice periods. It should be transferable if the property is sold and adjusted upwards in the event of changes to the rent. The guarantee should be a directly enforceable guarantee, preferably an on-demand guarantee, and apply to any claim against the tenant based on the contract.