Unlike most residential mortgages, where the borrower is an individual (or individuals) personally on title and personally on the mortgage, commercial properties are frequently owned and financed through a corporation, a numbered company, or a partnership structure, often for liability protection and tax reasons entirely separate from the mortgage itself. This creates a specific question for a lender: if the corporate borrower cannot pay, and the corporation itself has no assets beyond the mortgaged property, who else stands behind the loan?
A personal guarantee is a separate legal commitment, given by an individual (typically a principal or owner of the corporate borrower), promising to personally repay the loan — or some defined portion of it — if the corporate borrower does not. It extends the lender's recourse beyond the property and the corporate entity to the personal assets of the guarantor, which is precisely why lenders ask for one on smaller or higher-risk commercial deals, and precisely why sophisticated commercial borrowers try to negotiate around, limit, or avoid one where they have the leverage to do so.
Where more than one principal stands behind a deal, guarantees are commonly structured either jointly and severally — meaning the lender can pursue any one guarantor for the full amount, leaving that guarantor to sort out contribution from the others afterward — or split proportionally among the guarantors, which is generally more favourable to each individual guarantor but can be harder for a lender to enforce cleanly.
Not every guarantee covers the entire loan indefinitely. A full guarantee stands behind the whole loan amount. A limited guarantee caps the guarantor's exposure to a specific dollar amount or a specific percentage of the loan — a common middle-ground negotiated on larger deals where a full personal guarantee would be disproportionate to the principal's actual involvement or ownership share. A "bad boy" guarantee (also called a springing or non-recourse carve-out guarantee) is narrower still: the loan is otherwise non-recourse, but the guarantee springs into effect only if the borrower engages in specific bad-faith conduct — fraud, misappropriation of rents, unauthorized transfer of the property, or similar — rather than applying to ordinary business underperformance.
This last structure is worth understanding even for brokers who mostly work smaller deals, because it illustrates the underlying logic clearly: lenders are generally willing to accept genuine market and business risk without a personal guarantee attached, but they want personal recourse available specifically against dishonest or bad-faith behaviour that a well-drafted loan agreement cannot otherwise prevent.
A fully non-recourse loan limits the lender's remedy, in the event of default, to the property itself — no personal guarantee, no claim against the corporate borrower's other assets. Non-recourse financing is generally reserved for larger, well-qualified deals with strong sponsors, strong property fundamentals and often mortgage insurance or institutional lending standards behind them, since the lender is accepting more concentrated risk in exchange for the deal's overall strength.
CMHC's MLI Select multi-unit program, covered in the next module, is a useful concrete example of how recourse gets built into an actual Canadian program: standard MLI Select financing is recourse, but borrowers who reach the highest point threshold under the program (100 points, reflecting the deepest affordability, energy-efficiency and accessibility commitments) can access a limited-recourse option. This is a clean illustration of the general principle running through this module — recourse is not simply granted or withheld, it is priced and structured as part of the overall risk-and-benefit package a lender or program offers.
A commercial borrower's loan agreement states the loan is otherwise non-recourse, but the principal is personally liable if they commit fraud, misappropriate rental income, or transfer the property without the lender's consent. What kind of guarantee is this?
This is the textbook description of a bad boy or non-recourse carve-out guarantee: the loan is non-recourse for genuine business or market risk, but personal liability springs into effect specifically for defined bad-faith conduct like fraud or diversion of rents. It is not a full guarantee, which would apply regardless of cause; it is a real and common structure in Canadian commercial lending; and "jointly and severally" describes how multiple guarantors share liability with each other, not what triggers a guarantee in the first place — a different concept entirely.
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