The courts have ruled that any material and prejudicial variation in a contract made without a guarantor's consent will release him/her from liability under the guarantee, such as a change in interest rate or an extension of time for payment. However, another principle of law says guarantors can waive the right to be relieved of liability, if they explicitly relinquish it.
Lenders may insist that every borrower and guarantor sign a renewal agreement in the future.
Lenders may word their standard guarantee clauses to ensure guarantors continue to be bound by their guarantees after maturity, even if no renewal/amendment /extension agreement is signed.
Until a renewal agreement is signed, the old mortgage terms, including the interest rate, remain in effect unless the parties expressly agree to the contrary.
Sometimes the lender has added a clause stating that if a renewal agreement is not signed before maturity, the lender has the option to extend the mortgage for six months or a year, closed term.
The lender may add a clause stating that, if a renewal agreement is not signed, the lender may sue the borrower for non-payment of the outstanding principal when the mortgage has expired.
Derived from an article by Alan Silverstein, The Toronto Star, dated November 30, 1996.
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