Landlords who are concerned about a tenant’s financial position sometimes require the tenant to provide a cosigner. A cosigner is a third party who agrees to be jointly and severally liable with the tenant for the performance of the lease or rental agreement—including paying rent and covering damage-related repair costs. In other words, you, as the landlord, can choose to pursue money the tenant owes from the tenant, the cosigner, or both. Unless your cosigner agreement states otherwise, the cosigner remains responsible even if the tenant sublets or assigns the lease or rental agreement.
Requiring cosigners is a way for landlords to protect their income, especially when renting apartments to tenants with questionable income or credit history. However, having a lease or rental agreement backed by a cosigner isn’t always as secure as it might appear.
The Benefits of Cosigners
Aside from the fact that you have an additional person responsible for upholding the lease or rental agreement, the main benefit of having a cosigner the psychological effect it has on the tenant.
Because cosigners are often the tenant’s relative or close friend, tenants who believe you might go after their cosigner are less likely to default on rent, and more likely to treat their apartment with care. Similarly, a cosigner might encourage the tenant to meet the demands of the lease or rental agreement, and even possibly provide financial help when needed—no wise cosigner wants to be on the receiving end of a lawsuit.
The Drawbacks of Cosigners
Even though requiring a cosigner has some significant benefits, it can create more work for you as a landlord. Also, the chances of actually collecting from a cosigner might not be high enough to justify your extra efforts.
Requiring a cosigner creates an added layer of complexity to the tenancy. Because a cosigner who has poor credit or no income won’t be much help when it comes time to collect, landlords should always require prospective cosigners to fill out a separate rental application and agree to a credit check. Once you decide to accept a cosigner, you’ll need to draft a cosigner agreement and have both the tenant and the cosigner sign it. You should also have the cosigner sign any amendments to the lease or rental agreement.
In practice, collecting from a cosigner can be challenging. If the cosigner doesn’t respond to your written demands for payment, you’ll have to sue. Bringing a lawsuit—even in small claims court—can be time-consuming and costly. If all you’re seeking is a month’s worth of rent, it might not be worth your effort. Also, if you decide to sue, you’ll have to determine if you can (and want to) bring suit against both your tenant and the cosigner at the same time, or if you’ll need to bring separate suits. Your choice might depend on the law where your rental is located. A local landlord-tenant attorney can help you evaluate the best option for your situation. Finally, if your lawsuit is successful, you’ll still have to collect on your judgment. If the cosigner lives in another state, this might mean that you have to involve an attorney in the cosigner’s state of residence in order to enforce the judgment.
Is Requiring a Cosigner Worth the Effort?
Whether or not cosigners are worth the additional hassle depends on the specific circumstances of your tenants and local rental market. Generally speaking, requiring a cosigner is probably a good business practice for landlords who rent apartments to college or university students who might be financially dependent on their parents or guardians.
For all other landlords, it’s likely best to make the decision on a case-by-case basis. For example, if someone applies for your rental who you believe will be a good tenant but has struggled financially in the past, you might consider requiring a cosigner. Alternatively, you might decide that it’s better to impose stringent requirements on your applicants or charge higher security deposits (so long as they are within any state or local law limits), than to accept cosigners to insure against tenant defaults.
It is legal for landlords to have a “no cosigners” policy, with one exception: If a tenant or potential tenant with a disability who has inadequate income (but would otherwise be a suitable tenant) asks you to accept a cosigner, you must consider the proposal. If the prospective cosigner is solvent and stable, federal law requires you to make an accommodation for the person with a disability by accepting the cosigner.