When a friend or family member asks you to cosign a lease or rental agreement, you might wonder if signing on the dotted line is a wise thing to do. While your first instinct might be to want to help, you need to fully inform yourself about the pros and cons of becoming a party to a binding rental contract—especially considering the fact that you won’t be living at the rental.
What Is a Lease Cosigner?
Many landlords require tenants to have a non-tenant cosign their leases (or rental agreements). Most landlords who require cosigners do so because they want to have someone besides the tenant to turn to in the event the tenant doesn’t pay rent or causes damage to the rental.
A cosigner is considered a party to the agreement. Although cosigners aren’t the primary tenant, most of the time they share equal responsibility with the tenant for performing the promises under the lease. In legalese, a cosigner is “jointly and severally liable” with the tenant, meaning that in the event the tenant breaks the lease, the landlord can seek compensation from both the tenant and the cosigner. For example, if a tenant skips out of the rental owing two months’ rent, the landlord can choose to sue the tenant or the cosigner—or both—for the full amount the tenant owes.
Cons of Being a Cosigner
As a cosigner, because you are jointly and severally liable with the tenant, any misstep by the tenant exposes you to legal claims from the landlord, which could result in any or all of the following.
- Monetary liability. When a tenant doesn’t pay rent or causes damage to the rental unit, the landlord’s first recourse is to deduct the money owed from the tenant’s security deposit. If the security deposit isn’t sufficient to reimburse the landlord, the landlord can then turn to you. If the landlord has reason to believe the tenant can’t pay up, the landlord can seek payment from you before even attempting to collect from the tenant.
- Credit score dings. Whenever you fail to live up to a financial responsibility, your credit score might take a hit. If you’re not able to hold up your end of the cosigner agreement, your credit score might be negatively affected, even though you weren’t the renter.
- Wasted time. Any time you spend responding to a claim or lawsuit from the landlord is time you could be doing something much more enjoyable.
- Unless the tenant you cosign with is extremely responsible, it’s almost inevitable that being a cosigner will place a strain on your relationship. You might have to nag the renter with reminders to pay rent, or resolve a dispute when the renter skips out altogether. And, don’t discredit the mental distress that might occur should you end up in a legal battle with the landlord.
If the cosigner is someone you are very close to or who is dependent on you (such as a disabled relative), you might be willing to accept these risks. On the other hand, if you are not close to the person, or have reason to believe he or she might not be able to pay rent, you should not take the responsibility of being a cosigner lightly.
Pros of Being a Cosigner
Most landlords require only “risky” tenants to have a cosigner. For example, it’s more likely for a landlord to require a cosigner when the tenant is a student, unemployed, or dependent on others for care. So, if you’ve been asked to cosign a lease, it probably means that your friend or family member is in a position of needing assistance of some sort, or is just entering the adult world of creditworthiness and employment.
Perhaps the only real upside of being a lease cosigner is knowing that you’re supporting the person looking for a rental. In many cases, this is good enough reason to agree to the arrangement.
If You Decide to Cosign
When you agree to cosign, consider taking the following steps to ensure that the relationship goes smoothly.
- Discuss the details. Have a conversation with the renter. Bring up the potential consequences for both of you if the renter doesn’t pay rent or causes damage to the property. Renters who know that a person they care about—such as you—could face penalties if they default are much more likely to be diligent tenants.
- Monitor the tenancy. As part of your discussion, offer to check in with the renter about how the tenancy is going. You could also offer to send email or text reminders when rent is due. You can note that you’d like to check in with the renter not out of distrust, but rather out of desire to support the individual’s independence.
- Assist if necessary. Let the renter know that you want to help should a problem arise. Even if you’re not in a strong financial position yourself, you might be able to provide enough help to get the person through a rough patch, either from your personal finances or by obtaining a loan. Providing some sort of financial assistance might be better than letting the renter default and ending up in a lawsuit or having your credit damaged. You could also serve as an intermediary between the landlord and the tenant in the event of a dispute.
Much of the time, being a cosigner is a positive experience for everyone involved. You have the benefit of knowing that you’ve helped someone gain independence, and hopefully build a rental resume that will lead to future cosigner-free leases. If you end up in a dispute that you can’t settle with the landlord, or if the landlord sues you, consider contacting a local landlord-tenant attorney to discuss the situation and possibly defend you in court.