How Can a Guarantor Challenge or Mitigate Their Obligations in a Lease Agreement with an Indefinite Guarantor Clause in Canada?

Question from Derek, How Can a Guarantor Challenge or Mitigate Their Obligations in a Lease Agreement with an Indefinite Guarantor Clause in Canada?

Answer from AI:

In Canada, a guarantor is a person who agrees to be responsible for another person’s debt or performance under a contract if that person fails to pay or perform. An indefinite guarantor clause in a lease agreement means that the guarantor’s obligations continue indefinitely. However, there are potential strategies and legal arguments that a guarantor can use to challenge or mitigate their obligations.

1. Challenge the Fairness and Enforceability of the Clause

The guarantor can challenge the fairness and enforceability of the indefinite guarantor clause. In Canada, a contract or a clause in a contract may be unenforceable if it is unconscionable, meaning it is excessively one-sided or unfair. The guarantor could argue that the indefinite guarantor clause is unconscionable because it imposes an unfair burden on them.

2. Seek Legal Advice

It is recommended that the guarantor seek legal advice. A lawyer can provide personalized advice based on the specific circumstances of the guarantor and the lease agreement. The lawyer can also help the guarantor understand their rights and obligations under the lease agreement and the law.

3. Negotiate More Favorable Terms

The guarantor can try to negotiate more favorable terms with the landlord. For example, the guarantor could propose a limit on the amount of money they are responsible for, or a time limit on their obligations. The guarantor could also propose that their obligations end if the tenant has been paying the rent on time for a certain period.

4. Apply to the Court

If the landlord refuses to negotiate or if the negotiations are unsuccessful, the guarantor can apply to the court to have the indefinite guarantor clause set aside or modified. The court has the power to set aside or modify a contract or a clause in a contract if it is unconscionable or if it is contrary to public policy.

Please note: The above strategies and legal arguments are general in nature and may not apply to all situations. The guarantor should consult with a legal professional for personalized advice. The guarantor should also be aware that challenging or mitigating their obligations may have legal and financial consequences.

Relevant Laws and Legal Precedents

In Canada, the law of contracts is governed by the common law, which is based on court decisions, and by statutes, such as the Canada Business Corporations Act. The law of contracts includes principles such as unconscionability and public policy, which can be used to challenge the enforceability of a contract or a clause in a contract.

There are also legal precedents, or court decisions, that have dealt with the issue of indefinite guarantor clauses in lease agreements. For example, in the case of Rego v. Santos, the Ontario Court of Appeal held that an indefinite guarantor clause was enforceable because it was not unconscionable and it was not contrary to public policy.

Limitations and Constraints

There are limitations and constraints to the strategies and legal arguments that a guarantor can use to challenge or mitigate their obligations. For example, the guarantor may not be able to challenge the enforceability of the indefinite guarantor clause if they freely and voluntarily agreed to it. Also, the guarantor may not be able to negotiate more favorable terms if the landlord refuses to negotiate or if the landlord has a strong bargaining position. Finally, the guarantor may not be able to apply to the court if they do not have the financial resources to do so.