More properties are using a rent guarantee company in place of a joint guarantor. Here's a look at what benefits this offers owners, alongside the basic mechanics of how guarantee companies work.
- A rent guarantee company (yachin hoshō gaisha) is a business that, under contract, advances payment on the tenant's behalf when rent goes unpaid.
- Unlike a joint guarantor (rentai hoshōnin), who is an individual, a guarantee company provides the guarantee as a business.
- For owners, the main benefit is being able to leave the demand-for-payment and advance-payment work to the guarantee company when rent is unpaid.
- The scope of coverage (whether it extends beyond rent to things like restoration costs) and the exemption clauses differ from company to company.
- A guarantee company's financial standing, track record, and partnership with your management company are also worth checking when choosing one.
What Is a Rent Guarantee Company?
A rent guarantee company is a business that, when a tenant falls behind on rent, advances an amount equivalent to the rent to the landlord under contract, and then seeks reimbursement (kyūshō) from the tenant. In recent years, as more prospective tenants are unable to arrange a joint guarantor, it has become common for properties to require the use of a guarantee company as a condition of tenancy. For prospective tenants without anyone nearby they can ask to be a joint guarantor — young single renters or non-Japanese applicants, for example — a guarantee company plays a role in lowering the barrier to renting.
How This Differs From a Joint Guarantor
A joint guarantor (rentai hoshōnin) is an individual who bears guarantee liability as a party to the contract, whereas a guarantee company provides guarantee services as a business. Even when using a guarantee company, some leases require both a joint guarantor and a guarantee company, depending on the terms. Another difference is that an individual joint guarantor's ability to actually deliver on the guarantee can shift with that person's own finances or health, while a guarantee company provides the guarantee as an organization.
The Main Benefits From an Owner's Perspective
The main benefit of using a guarantee company, from an owner's perspective, is being able to leave the demand-for-payment and advance-payment work to the guarantee company when rent goes unpaid. Compared with contacting and billing a joint guarantor individually, this can reduce the burden of dealing with it. It's also a benefit that it widens the pool of prospective tenants to include those who can't arrange a joint guarantor. Where the guarantee company is coordinated through your management company, the process of notifying it and applying for the advance payment when arrears occur tends to go relatively smoothly.
Points Worth Checking When Choosing a Guarantee Company
When choosing a guarantee company, you need to check the scope of what's covered (unpaid rent only, or also restoration costs and litigation costs), whether there are exemption clauses, the screening criteria, and the level of the guarantee fee. If your management company has a partnership with a particular guarantee company, it's worth also checking the details and track record of that partnership. Whether the tenant or the landlord bears the guarantee fee varies by property and contract, so it's important to sort this out when setting the listing terms too.
Points to Watch When Using a Guarantee Company
Even when using a guarantee company, it's worth remembering that the company doesn't necessarily cover every arrears risk unconditionally. There's some possibility that a case falls under an exemption clause, or that the guarantee company's own financial standing means the coverage you expected isn't actually available. It's important to check the contract terms carefully in advance. Because the guarantee commitment contract may need to be renewed, it's also a good idea to check the contract term and whether there's a renewal fee, together with your management company.
Frequently Asked Questions
Does using a guarantee company eliminate the risk of rent arrears entirely?
It depends on the guarantee company's contract terms — in cases that fall under an exemption clause, or depending on how the guarantee company handles things, you may not receive the coverage you expected. You need to check the contract terms.
Can I require both a joint guarantor and a guarantee company?
It's possible to require both as contract conditions, but this places a bigger burden on prospective tenants and could make the listing terms unattractive, so you need to weigh the balance.
How should I choose a guarantee company?
It's common to compare the scope of coverage, exemption clauses, screening criteria, guarantee fee, and track record of coordination with your management company. If you're unsure, we recommend consulting your management company.
Summary
A rent guarantee company is a mechanism that takes on, in the owner's place, the demand-for-payment and advance-payment work when rent goes unpaid, and it's also used to accommodate prospective tenants who find it hard to arrange a joint guarantor. Because the scope of coverage and exemption clauses differ from company to company, it's important to check the contract terms carefully before choosing one. Choosing a guarantee company suited to your property's tenant base, in consultation with your management company, also contributes to stable rental management.