For Ontario landlords, securing a financially responsible tenant is paramount. When dealing with applicants who have limited credit history or income, requesting a guarantor is a common and often necessary strategy. However, the use of guarantors is a nuanced area, governed less by the Residential Tenancies Act, 2006 (RTA) and more by the Human Rights Code and established case law.
Understanding these specific rules is essential to ensure your leases are enforceable and legally compliant.
What Exactly is a Guarantor?
A guarantor is a third party who signs a separate agreement promising to assume the financial burden of the tenant’s obligations if the tenant defaults. This typically includes:
- Unpaid rent.
- Costs for tenant-caused damage to the rental unit.
Crucially, a guarantor is generally not considered a tenant under the RTA and does not reside in the rental unit. Their role is purely financial security.
Rules for Requesting a Guarantor: Avoiding Discrimination
While landlords have the right to request a guarantor, you must do so without violating the Ontario Human Rights Code. Your criteria for requesting a guarantor must be based on legitimate financial risk, not on discriminatory factors.
Acceptable Reasons to Request a Guarantor:
- The applicant has limited or poor credit history.
- The applicant has an insufficient income to reasonably cover the rent (high rent-to-income ratio).
- The applicant is a first-time renter with no verifiable rental history or references.
Unlawful Discrimination (Do NOT Request a Guarantor Based On):
You cannot request a guarantor based on a protected characteristic, such as:
- The applicant’s age (if they are 18 or older, or 16 and independent).
- The applicant’s receipt of social assistance (e.g., ODSP, Ontario Works).
- The applicant’s country of origin or being a newcomer to Canada.
Landlords must apply the same financial criteria to all applicants to avoid human rights claims.
The Critical Rule: Duration of the Guarantee
This is the most significant area of confusion for many landlords. The default legal position in Ontario is that the guarantor’s obligation expires at the end of the initial fixed term of the lease (usually 12 months), even if the tenant remains in the unit on a month-to-month tenancy.
Why is this the case? When the lease moves to a month-to-month basis under the RTA, it becomes a “statutory renewal” which is viewed by courts as a new liability not automatically covered by the original guarantee contract.
How to Extend the Guarantee (If Possible):
If you want the guarantee to continue as long as the tenant occupies the unit, the separate Guarantee Agreement must contain express and unambiguous language stating that the guarantor’s liability continues through all subsequent renewals and extensions of the tenancy, whether by agreement or operation of law.
Consult with a legal professional to ensure your guarantee wording is robust and legally sound, as indefinite clauses can be challenged.
Enforcing the Guarantee: Where to Seek Payment
Landlords should understand that the Landlord and Tenant Board (LTB) cannot issue orders against a guarantor.
The process to recover losses from a guarantor is a two-step legal action:
- Action Against the Tenant (LTB): The landlord must first apply to the LTB to establish the tenant’s liability (e.g., for rent arrears or damages) and obtain an eviction order, if applicable.
- Action Against the Guarantor (Court): Once the tenant’s liability is established (either by an LTB order or by the tenant vacating), the landlord must then sue the guarantor in Small Claims Court (or Superior Court, depending on the amount) to enforce the separate guarantee contract.
The guarantor’s liability is secondary; the tenant must first be found liable for the debt before the guarantor can be pursued.
Best Practices for Landlords
- Use a Separate Guarantee Form: Do not simply include the guarantor on the Standard Lease. Use a detailed, separate Guarantee Agreement that clearly defines the scope of liability (rent, damages, and costs) and the duration (specifically addressing statutory renewals).
- Screen the Guarantor: Treat the guarantor as seriously as the tenant. Verify their income, employment, and credit history to ensure they can actually cover the financial obligation if needed.
- Maintain Proof of Service: Keep all correspondence, application forms, and the original, signed Guarantee Agreement in a secure file.
