Co-signer vs Guarantor in Ontario

OttawaLandlord

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Feb 17, 2014
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#1
I just want to validate these definitions as well as the convenience of getting someone to sign as a co-signer vs guarantor in Ontario.



Co-signer: a person who signs a tenancy agreement along with the tenant and agrees to be responsible for the obligations of the tenant. For example: the obligation to pay rent and to pay for damages, etc.



Guarantor: a person who signs an agreement stating that they will guarantee that a tenant will meet specific obligations set out in the guarantee itself. For example: the obligation to pay rent and to pay for damages, etc.



As everybody knows, in Ontario is always better for Landlords to go to the small claims rather than to the Board for anything except rent payment. With this reality in mind, I believe I read somewhere that if someone signs as a guarantor (meaning that s/he is not mention in the tenancy agreement conforming to the definition above) then any claim can go directly to the small claims any time whereas if it is a co-signer then the claims have to be settled at the Board.



I have two applicants for a townhouse. One has OK income. The second is low... Without asking she offered to include her mom as a co-signer... However, I plan to ask her to be a guarantor.



Does anyone with experience in Ontario has any comments with regards pros and cons on having a guarantor vs co-signer? I'm inclined to have a guarantor signing a separate agreement so if there are problems with tenants not paying utilities or damages I just go to the small claims (since the Board typically considers that any payment is always rent-first and anything else is second).



Note that I've seen many lease agreements where guarantors are part/included in the tenancy agreement... I understand that for all purposes these "guarantors" are indeed "co-signers" and therefore claims against them have to be settled at the Board (while on tenancy). I just want to be sure to use the right instrument to increase the possibility to settle things at the small claims rather than the board.. should the need arises in the future.



Any advise is greatly appreciated



Thanks



Alex
 

invst4profit

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Aug 29, 2007
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#2
Guarantor is the preferred choice. It will allow you to go directly to Small claims and as you suggest avoiding the board is always preferred in Ontario. Unfortunately you will however still have to go through the process of eviction via the board if they stop paying. In addition you will likely face late payments and excuses for a very long time before you ever get to the point of eviction. Having a guarantor will not avoid the hastle of having a bad tenant or allow you to avoid the board it will only increase your chances of collecting money owed. Keep in mind once you do have a board order to pay you can convert this directly to a Small Claims order. On the other hand once a tenant vacates a unit your only option is Small Claims Court so in reality a Guarantor really does not make life any easier to deal with bad tenants.

In any situation where the applicant volunteers a guarantor I would be placing them far down my list of possible candidates. Again being in Ontario I am very suspect of this type of applicant.

You will need to go through the same screening process with the guarantor as you would with a tenant applicant and you may be disappointed in what you find.

I would always prefer to go with a applicant having a credit rating that meets my criteria. Having no tenant is far better than taking a chance on a bad tenant.
 

REQRentals

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Registered
Mar 10, 2014
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Toronto,
#3
Hi Alex,



This is the statement from the Board Guideline on topic.


May a Guarantor be Ordered to Pay Rent Arrears


There are tenancies that the landlord only accepted on the basis that a person other than the tenants would guarantee that the rent would be paid, should the tenants not be able to pay. The question is whether the Board may order a guarantor to pay rent arrears if the landlord includes them with the tenants as respondents to the application.


In most cases, the guarantor has no express right of possession and, even if they do, no one expects them to ever occupy the rental unit.


The Board will not make an order against guarantors because they are not tenants. The RTA does not authorize the Board to deal with such claims, even if they are related to the issue of rent arrears. Landlords may seek enforcement of such obligations through the courts.



The key question is whether the person pays rent for the right to occupy the unitwidows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; float: none; display: inline !important;">, thus meeting the definition of tenant. There is another test that the tenant must be in possession of the unit at the time any application to the Board is filed.



If the "guarantor" has no right to occupy the unit or were never practically intended to do so the Board will consider them guarantors regardless of what name they go by.



Many landlords seek to get around this by listing the guarantor as an additional tenant, thus giving them the right to occupy the unit. This is why they include them in the lease.



By doing this if they have to evict the tenant they attempt to secure an Order for Payment in front of the Board at the same time. This avoids the cost and delay of a second proceeding in Small Claims Court after the tenant leaves. If the guarantor defends the small claims proceeding it can take over a year to get the judgment.



So I would make them tenants on the lease. The worst that happens is that the Board disallows the claim and you will have to go to Small Claims just as you would if you call them guarantors or co-signers.



Hope this helps.