At Cassels Brock, we are regularly asked by equipment lessors if
it is better to structure a transaction as co-lessees or as a
lessee with a guarantor. The classic example would be in a car
lease where a parent is "signing" on behalf of their
child. The parent will have no use of the car but will be fully
obligated to make payments. We will call the parent in this example
the Non-User Co-lessee. In essence, the Non-User
Co-lessee is guaranteeing the payment. The question is: is the
Non-User Co-lessee, at law, more than a guarantor? In response, our
advice has been that a co-lessee structure is generally preferable
but there was very little law focussing on this issue.
The recent case of GMAC Leaseco Corporation v Greg
Jaroszynski (decided by the Court of Appeal for Ontario,
October 29, 2013) has clarified this area of law.
1. a Non-User Co-lessee is not merely a guarantor and is held to
the standard of being the primary obligor. It should be noted
however, that the result may have been different if there was not
an entire agreement in the lease; and
2. whether a person (corporate or individual) is a guarantor or
a co-lessee, they both should be notified of and consent to
material alterations to the terms of the equipment
lease or guaranteed obligations unless they have contracted out of
this protection. This includes any change to the risk and any
change that might prejudice the guarantor or co-lessee, and
includes renewals, extensions or other amendments to the equipment
This certainty is good news for equipment lessors seeking to
take steps to ensure that the terms of their agreements (including
the obligation to return the leased goods or to pay for the
residual value) bind all co-lessees and guarantors.
This decision will be of particular interest to those taking
personal guarantees in the province of Alberta given the recent
changes to the formalities required to establish a valid guarantee
in Alberta under Alberta's Guarantees Acknowledgement
Act. (For further information, please see our e-alert called
Individual Guarantors in Alberta: Trap for the Unwary and Extra
Cost" dated February 12, 2014.)
What This Means for Equipment Lessors
The key takeaways are that equipment lessors should always do
1. Include the key clauses: Ensure the
equipment lease agreements and any related guarantees contains a
principal debtor clause and an entire agreement
2. Get it in writing: In order to ensure that
all co-lessees and guarantors are bound by (and that guarantees
will extend to) the terms of an amendment to the equipment lease,
each co-lessee and guarantor should provide written consent to, and
acknowledgement of, any material changes to the terms of the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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