Many owners don’t distinguish well between the roles of the property manager and the guarantor company when there is a specific problem with a delinquent tenant. 

The guarantor company is a third party insurance that usually covers lost rent, eviction legal proceedings, tenant-belonging removal costs and restoration of the property to the original condition in the event when the tenants can not pay their rents for an extended period of time.  

In the case of entering a new lease contract, the cost for this insurance is a tenant borne expense, included in the myriad of fees that tenants pay in order to sign the lease.

When the tenant applies to rent your property, they fill out two applications; one for the property manager and another for the guarantor company.  

The guarantor company conducts thorough background criminal and credit checks on the lease applicants and the property manager will usually rely on the outcome of the guarantor company’s assessment to determine whether the applicants are suited for the apartment. 

In the case when you invest in a renter-occupied property that is not guaranteed, the insurance cost will be borne by yourself. If the existing tenant had a history of failing to pay the rents on time, the guarantor company will likely not accept your application. 

So where does the property manager end and the guarantor company begin?

Elaine Tung, Marketing Strategist at WealthPark.  Photo courtesy of Elaine.

In Japan it is illegal for a paid property manager to represent an owner in eviction legal proceedings, thus making the requirement of a third party guarantor company even more necessary. 

When there is a delinquency, the property manager will notify the guarantor company and the unpaid rent is covered while the guarantor company begins sending rent notifications to the tenant. 

Once the tenant ignores the notifications and is delinquent for consecutive months (usually 3 months or more in arrears), the guarantor company will send a notice of eviction to the tenant. However this notice is not legally binding.  

For a legally binding eviction, the owner needs to file a lawsuit against the tenant.  Here too the property manager can not be involved but can only recommend a lawyer who would then take over the eviction process. 

The guarantor company generally does cover legal costs for this however an expense cap might exist so owners need to be aware of what that cap is prior to deciding on which particular guarantor company to introduce to prospective tenants. 

From the point where the tenant is delinquent enough on rent to start an eviction process all the way to the actual eviction after a lawsuit, it is the guarantor company and the owner appointed lawyer that take charge with the property manager taking a back seat, offering only tertiary support throughout the process.

Many owners might assume that should a tenant issue arise requiring the possibility of eviction, the property manager will be there the whole way when this is not the case, making for endless frustration in an already stressful situation.

All this is why it is critical for owners to understand in detail the terms and conditions of their chosen guarantor company.  Which particular guarantor company tenants use is the owner’s decision which is why knowing the details of your particular guarantor company’s terms and conditions are critical as every guarantor company offers slightly varying coverages.  

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Your property manager should help with your understanding of the details, handling all the required application procedures from communicating with the tenants, monitoring the tenant screening and documentation on your behalf. 

Well executed property management is one of the important factors of effect on whether your investment is a stable, profitable one.  Make sure your property manager explains to you the ins and outs of the guarantor company so that both you and them are up to date on what needs to happen when delinquency occurs.