Guarantees Acknowledgment Act Certificate - Fact Sheet

Your Calgary lawyer to advise on personal guarantees and Guarantees Acknowledgment Act Certificate.

Personal Guarantee & GAAC  |  Bank Loan  |  Financial Obligation  |  Commercial Lease  |  Car Loan  |  Student Loan

Schedule an appointment with our law firm at 403-400-4092 or Chris@NeufeldLegal.com

In Alberta, if you are acting as an individual guarantor for someone else's debt (such as a business loan or a mortgage), the law requires an extra layer of protection called the Guarantees Acknowledgment Act. This ensures that you fully understand the financial risks you are taking.

1. What is a GAA Certificate?

A Guarantees Acknowledgment Act Certificate is a formal document signed by a lawyer after they have met with you to explain the nature and effect of a guarantee.

Without this specific certificate, a guarantee signed by an individual in Alberta is generally not legally enforceable.

2. When is it Required?

The Act applies when an individual (not a corporation) enters into a guarantee to pay the debt of another person or entity.

• Common Scenario: You are a director of a small company, and the bank requires you to personally guarantee a business loan.

• Common Scenario: You are co-signing a significant loan or lease for a family member.

3. The Legal Process

To make the guarantee valid, the following steps must be followed:

• Independent Appearance: You must appear before a lawyer (who is not the lawyer for the lender).

• The Explanation: The lawyer must explain the "legal nature and effect" of the guarantee.

• The Examination: The lawyer must be satisfied that you understand the liability you are assuming.

• The Signing: You sign the certificate in the presence of the lawyer.

• The Lawyer’s Statement: The lawyer signs a statement confirming they provided the explanation and that you appeared to understand it.

4. Key Components of the GAA Certificate

• Witness: Must be a practicing lawyer in Alberta.

• Guarantor's Signature: Must be signed in the lawyer's presence.

• Knowledge: The guarantor must acknowledge they are aware of the contents of the guarantee.

• Form: Must follow the specific wording prescribed by the Alberta's Guarantees Acknowledgment Act.

5. Why is this necessary?

The purpose is consumer protection. A guarantee is a "latent" liability; it doesn't cost you anything today, but it could cost you everything tomorrow if the primary borrower defaults. The Act prevents people from being pressured into signing complex financial documents without realizing they are putting their personal assets at risk.

6. Important Limitations

• Not Financial Advice: The lawyer's role is to explain the legal consequences (e.g., "If they don't pay, the bank can sue you personally"). They do not usually advise on whether the deal is a "good investment."

• Corporate Exception: If a corporation provides a guarantee, a GAA Certificate is typically not required (though the lender may still ask for a legal opinion).

Important Note for Guarantors: For anyone considering becoming a guarantor, it's crucial to understand the significant financial responsibility and risks involved. They are legally obligated to fulfill the terms if the primary party defaults, and this can have serious consequences for their own finances and credit history. Consulting with legal and financial professionals before signing a guarantee agreement is highly recommended.

When you are in need of legal representation with respect to the provision of a personal guarantee for another party's indebtedness (i.e., bank loan, debt financing, commercial lease, car loan, student loan), including the proper completion of a Guarantees Acknowledgment Act Certificate, contact Calgary personal guarantee lawyer Christopher Neufeld by email at Chris@NeufeldLegal.com or by telephone at 403-400-4092 to schedule an appointment (with our law firm offering three convenient means to promptly attain a Guarantees Acknowledgement Act Certificate).