What is a Rental Guarantee and How Does it Work?

What is a Rental Guarantee?

A rental guarantee is a financial security that a tenant can provide to a landlord to ensure that the terms of the lease agreement are met. It can be likened to an insurance policy for the landlord, protecting against potential losses such as unpaid rent, damage to the property beyond normal wear and tear, or other breaches of contract by the tenant. In Sweden, it is not a legal requirement to offer or demand a rental guarantee, but it is common practice, especially in the competitive rental market where many wish to rent out their properties.

How Does a Rental Guarantee Work in Practice?

When a tenant and landlord agree to use a rental guarantee, it typically happens in one of the following ways:

• Deposit: The most common form is a deposit, where the tenant pays a sum of money in advance to the landlord. This sum is usually frozen in a separate account and returned to the tenant after moving out, provided no damages or unpaid rent have occurred. The deposit amount typically ranges from 1 to 3 months' rent.
• Bank Guarantee: The tenant can request a bank guarantee from their bank. The bank then guarantees the landlord that a certain amount of money is available if the tenant fails to meet their obligations. This incurs a cost for the tenant in the form of the bank's fees.
• Guarantee via Company: There are also companies specializing in offering rental guarantees. These companies act as intermediaries and charge a fee to the tenant for providing the guarantee to the landlord.

The purpose of a rental guarantee is to reduce the risk for the landlord, thereby enabling more people to rent out their properties, while also potentially giving the tenant an advantage in the competition for desirable housing. It is important that the terms of the rental guarantee are clearly specified in the lease agreement to avoid misunderstandings.

Benefits of a Rental Guarantee

A rental guarantee offers several advantages for both the landlord and the tenant.

Benefits for the Landlord:

• Financial Security: The primary benefit is protection against financial losses. If the tenant fails to pay rent or causes damage to the property, the landlord can use the guarantee to cover these costs.
• Reduced Risk: By requiring a rental guarantee, landlords can feel more secure about renting out their property, especially to new or unknown tenants.
• Faster Process: In some cases, a rental guarantee can expedite the rental process, as it can be a decisive factor for the landlord in choosing a specific tenant.

Benefits for the Tenant:

• Increased Chances of Securing Housing: In a tough rental market, a rental guarantee might be the deciding factor that helps you get your dream home. It demonstrates that you are a serious and reliable tenant.
• Opportunity to Rent More Expensive Properties: Some landlords, particularly those renting out luxury homes or offering short-term rentals, may require a rental guarantee. Without one, it can be difficult to access these properties.
• Flexibility in Renting Out: For those renting out their property in the second-hand market, a rental guarantee can be a good way to protect their own investment, especially if renting out a furnished property.

Rental Guarantee Rules and Cost

Although there are no specific statutory rules for rental guarantees in Sweden beyond general contract principles and the Tenancy Act, there are certain practices and guidelines that are often followed. The size of a rental guarantee typically does not exceed 3 months' rent. If the tenant pays a deposit exceeding one month's rent, the excess amount should normally be placed in an interest-bearing account in the tenant's name, with the landlord covering the account costs. This is an important rule to protect the tenant's funds.

Rental Guarantee Cost

The cost of a rental guarantee varies depending on the type of guarantee used:

• Deposit: The deposit itself is usually not a direct cost to the tenant, as the money is refunded. However, it can mean a sacrifice of liquid assets during the rental period. If the deposit is placed in a separate account, a small administrative fee may apply.
• Bank Guarantee: For a bank guarantee, the bank charges a fee, often a percentage of the guarantee amount per year. This cost can amount to several thousand kronor annually.
• Guarantee via Company: Companies offering rental guarantees charge an annual fee, typically between 10-15% of one month's rent. This cost can also be significant over time.

It is important to carefully research and compare the costs of different types of rental guarantees before making a decision. A rental guarantee for a rental property should always be transparent regarding its costs and terms.

When is a Rental Guarantee Required?

A rental guarantee is most common in situations where the landlord seeks additional security. This includes:

• Rentals by Private Individuals: When private individuals rent out a house, apartment, or room, especially if they are new to renting out.
• Short-Term Rentals: For rentals during shorter periods, such as through Airbnb or for holiday accommodations.
• Student Housing: Although not as common as for regular rental apartments, some student housing may require some form of security.
• High Rent or Exclusive Properties: Properties with high rent or those considered particularly exclusive may require a rental guarantee to protect the landlord's valuable asset.
• Tenants Without Stable Income History: If a tenant has a short or unstable income history, the landlord may require a rental guarantee to compensate for the increased risk.

Common Misconceptions About Rental Guarantees

There are a few common misconceptions about rental guarantees:

• That it's a Requirement: A rental guarantee is not always mandatory but rather a tool that can be used to increase security.
• That it's Free: As mentioned above, some forms of rental guarantees may incur an actual cost for the tenant.
• That the Landlord Can Keep the Money Arbitrarily: Funds provided as a guarantee should only be used to cover actual, contractual costs. The landlord must be able to account for how the money was used if the tenant disputes it.

FAQ About Rental Guarantees

What is the difference between a deposit and a rental guarantee?

A deposit is the most common form of rental guarantee, where the tenant pays a sum of money in advance, which is refunded upon moving out if no damages or unpaid rent have occurred. Rental guarantee is a collective term that can include deposits, bank guarantees, or guarantees via companies.

Can I refuse to pay a rental guarantee?

You can refuse to pay a rental guarantee, but it may mean losing the opportunity to rent the property, especially if the landlord considers it a necessary security measure.

How much can a rental guarantee cost?

The size of a rental guarantee is, in practice, not allowed to exceed 3 months' rent. The cost of providing the guarantee (e.g., bank fees or company fees) varies depending on the type of guarantee and the provider.

When can a landlord use the rental guarantee?

A landlord may only use the rental guarantee to cover actual costs incurred due to the tenant's breach of contract, such as unpaid rent, damage to the property beyond normal wear and tear, or costs associated with evicting an illegal subtenant.

How do I get my deposit back?

After moving out, and after the landlord has inspected the property, the deposit should be returned to you within a reasonable time, provided there are no claims for compensation. You should receive an itemized statement if the landlord intends to retain part or all of the deposit.