Thursday, 13 August 2015

GURANTORS & CO-SIGNERS OF RESIDENTIAL LEASES

If you are looking for information respecting the nature of a guarantee or the obligation of a co-signer with respect to residential leases governed by Ontario's Residential Tenancies Act then I am pleased to offer these comments.


A guarantor in the residential leasing context is understood to be a person who agrees to pay the rent for a tenant should the tenant fail to pay the rent owing to the landlord.  Sometimes, it is also assumed that a guarantor is responsible for damage to the rental unit or complex and any other expenses arising out of the leasing arrangement.    In the rental housing context, the word guarantor is often used interchangeably with the concept of a co-signer.   Often enough, a residential lease contains a line at the end of the lease for the guarantor or co-signer to sign with the notation of "guarantor" or "co-signer" beside the line on which that person is expected to sign.


Some leases contain a line or paragraph about the co-signer or guarantor.  I have seen a great many versions of so called "standard" clauses and generally find that these clauses are vague and often enough don't spell out the expectations of the guarantor or what the guarantee actually guarantees.  As well, the lease clauses sometimes direct that the guarantor or co-signer who is being asked to sign the lease will also sign a separate document that is the guarantee and then, when you look for that document, you discover that no such document was ever signed or prepared.


The law of guarantee is quite complex and there are many aspects to the law that go well beyond the scope of a typical residential landlord and tenant law guarantee.   That being said, there are certain basic requirements for any guarantee to be enforceable against a guarantor.  The most important thing, I think, is the requirement for certainty of terms so that it is clear that there was indeed an agreement between the parties and that the nature of that agreement is clear.  Where this is missing there is a willingness, with exceptions, in the Courts to find that a guarantee is void for vagueness.


As indicated, the technical side of guarantees are many.  This article concerns itself with guarantees and the Residential Tenancies Act and what you need to know about the Landlord and Tenant Board's authority to deal with a guarantor, make findings respecting the guarantee, and make orders based on it.


It seems settled that a guarantor is not a tenant. The case of Kar v. Chung [2001] O.J. O.J. No 3817 (Ont. C.A.) speaks to this proposition and the same proposition is reflected in the Landlord and Tenant Board interpretation Guidelines on Eviction for Failure to Pay Rent.  Guideline 11 states in part that the Landlord and Tenant Board will not make an order against a Guarantor even where the granting of the tenancy to the tenant was conditional on the tenant having a guarantor.  As a result, a landlord may not expect to receive an order against a guarantor for unpaid rent even if the lease is drafted in such a way as to make it appear that the guarantor is a tenant.  While a lease may provide for a right of occupancy on the part of a guarantor and hence they are arguably tenants no one actually expects the guarantor to occupy the premises as a tenant.  Not being in occupation further limits the Board's jurisdiction to make an order even if the guarantor were considered to be a tenant.


The Kar decision referred to above provided an interesting explanation of the effect of a guarantee clause contained in a written lease.  The decision is very short so the endorsement is reproduced below in its entirety:


E N D O R S E M E N T

Released Orally: September 25, 2001
[1]               We disagree with the reasoning of both Mr. Justice Murphy and the Divisional Court. 
[2]               The lease was entered into on May 4, 1997 and it was to expire on May 4, 1998, subject to the tenant’s right to renew for another year on giving 60 days notice.  The tenant did not give notice.  The Landlord and Tenant Act R.S.O. 1990, C. L.7 was then in force.  Section 104(1) of that act provided as follows:
Subject to subsection (2), upon the expiration of a tenancy agreement for a fixed term, the landlord and the tenant shall be deemed to have renewed the tenancy agreement as a monthly tenancy agreement upon the same terms and conditions as are provided for in the expired tenancy agreement.
[3]               The legislation does not purport to affect or apply to guarantors.  The guarantor in this case is not deemed to have done anything.  There was no language in the guarantee itself dealing with renewals.  In those circumstances it seems to us that the guarantee expired at the end of the first year.
[4]               Part of the award of the Divisional Court was for damage to the premises.  There was no evidence whether it occurred during the first year or after the guarantor’s liability had ceased. 
[5]               In these circumstances the order of the Divisional Court is set aside and the judgment of the trial judge restored.  The tenant is entitled to her costs here and below.  Those costs are fixed, on consent, at $5000.


What should be learned from this endorsement (which remains as the law today under the Residential Tenancies Act even though the case was decided under the Landlord and Tenant Act), is that the nature of the guarantee and the extent of it must be clearly expressed.  The automatic renewal of a fixed term lease to a month to month lease does not renew a guarantee.


Another consideration in relation to guarantees is the circumstances under which a landlord may require a tenant to provide a guarantor.   In my view, the circumstances under which a guarantee is required may indeed lead to arguments that the guarantee was illegally required and hence is not enforceable.  A context in which this argument may arise is when a landlord automatically requires a guarantor for particular types of tenants. In a policy on Human Rights and Rental Housing, the Ontario Human Rights Commission discusses discrimination against young people by landlords.  Discrimination against young people can take many forms but one of those ways is to require all young people to provide a guarantor as a matter of policy.   People as young as 16 are entitled to rent and can not be refused because of their age.  If a landlord responds to a young person's rental application with an automatic requirement for a guarantor I think a clear case of discrimination is made out as it is quite likely that a 16 year old is looking for an apartment of their own (and one their own) because they do not have people in their lives who are prepared to act as guarantors. 


For people considering whether they are prepared to become a guarantor they should understand that a landlord may not act quickly in evicting for non-payment of rent or that a landlord may not take steps that seem reasonable to minimize the accumulation of rent arrears.  The landlord may also not tell the guarantor about problems in the tenancy and the guarantor may feel that the lack of involvement in the tenancy and problems in the tenancy should disentitle the landlord to claim against the guarantor.  For the most part, these concerns and arguments will carry little weight--unless of course there are negotiated terms respecting what the landlord will do vis a vis the guarantor.


SUMMARY


Guarantees have many technical aspects and the fundamental principles of contract law are important in determining respective rights and interests.  However, technical arguments tend not to be effective when landlords sue guarantors if the circumstances of the guarantee are such that it is fairly and reasonably understood from the documentation what the guarantor was agreeing to do. Signing a guarantee is a serious matter and the liability for that signature can very quickly represent thousands of dollars in unpaid rent and/or damages.


Michael K. E. Thiele
www.ottawalawyers.com


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About Michael Thiele

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Ottawa lawyer and partner at Quinn Thiele Mineault Grodzki LLP.  Graduate of Queen's University in Kingston, Ontario.  Called to the bar in Ontario in 1997.  Undergraduate degree at Colby College, Waterville Maine, U.S.A.