Category: Commercial Real Estate

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Commercial Real Estate

Court of Appeal Rules on “Unreasonably Withholding” Consent for the Assignment of a Lease

In the intricate world of commercial tenancies, landlord and tenant relationships can often be fraught with back-and-forth negotiations. One such scenario recently came to light before the Court of Appeal for Ontario when a dentist, seeking to assign his lease to two other dentists who were set to purchase his practice, found himself entangled in a complex battle for consent. What followed was a series of events that underscored the importance of understanding lease agreements and the boundaries of consent in the context of lease assignments.

What is an Assignment of a Lease?

A lease assignment refers to the transfer of a lease agreement from one tenant to another. When a tenant wishes to assign their lease, they essentially transfer their rights and obligations under the lease to a new individual or entity, known as the assignee.

In Ontario, the Commercial Tenancies Act imposes some restrictions on tenants and landlords when assigning a commercial lease. Specifically, section 23 states that the landlord is subject to the obligation that any license of consent to an assignment is not to be “unreasonably withheld.” Section 23(2) allows a tenant to apply to the Superior Court of Justice where such licence or consent has been unreasonably withheld.

What is the Doctrine of Waiver?

The doctrine of waiver is a legal principle whereby an individual intentionally relinquishes or abandons their right, claim, or privilege afforded in a contract. Under this doctrine, if a party fails to enforce or assert a right or benefit they are entitled to under the contract terms, they may be deemed to have waived that right. In other words, by knowingly and voluntarily choosing not to exercise a certain right, the party loses the ability to claim that right later.

The elements of the doctrine were best described in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co. as “full knowledge of the deficiency which might be relied upon and the unequivocal intention to relinquish the right to rely on it.” Since then, case law in Ontario has developed to clarify the situations in which the doctrine can be applied.

Retiring Dentist Sells Practice

The scope of unreasonable withholding and the applicability of the waiver doctrine were recently considered by the Court of Appeal in Rabin v. 2490918 Ontario Inc. At the time of the dispute, the appellant was a retiring dentist who had practiced for several decades. His practice was a tenant of a building that the respondent acquired to demolish and redevelop in the future. Through the purchase, the respondent became the landlord at the property.

The appellant had agreed to sell his practice to two younger dentists and sought the landlord’s consent to assign the lease as part of the business sale. The provision addressing lease assignments in the commercial lease required the appellant to give “prior written notice” to the landlord of his intent to transfer, and within 15 days of such notice, the landlord would notify of its consent or lack thereof.

Dentist Attempts to Assign Lease

The appellant sent the requisite notice to the landlord, but the respondent did not reply within the 15-day specified timeframe. It was not until 22 days after the notice was delivered that the landlord consented, subject to the addition of a demolition clause. The appellant refused, and the respondent withheld its consent. The parties continued their correspondence with several more requests for the landlord’s consent in the negotiations.

The application judge found that the appellant had waived the requirement under the lease for the respondent to provide consent within 15 days. In arriving at this decision, the judge was swayed by numerous emails sent by the appellant’s counsel renewing the request for consent. The judge dismissed the application.

Court of Appeal Overturns Ruling Based on Legal Errors

On appeal, the Court of Appeal found that the application judge had applied the doctrine of waiver where neither party had raised it as an issue, and the judge had erred in its application.

First, the Court noted that it is well established as a matter of natural justice that “it is not open to a judge to dispose of a material issue in a proceeding on the basis that has not been raised or argued by the parties.” The application judge had applied the doctrine of waiver on his initiative, preventing the parties from making submissions on this point.

Second, the application judge did not reference the test as set out above. He made no determination on whether the appellant had the “unequivocal and conscious intention” to waive his rights in any of the correspondence. In fact, the appellant had continuously insisted on compliance with the lease. The evidence pointed to the stringent test not being met, and thus, applying the waiver doctrine was a legal error.

Lease Assignment Ordered to Proceed

The Court went on to note that the application judge’s analysis should have focused on whether the consent by the landlord was “unreasonably withheld.” In doing so, the Court stated that it would look at “the information available to, and the reasons given by, the landlord at the time the landlord neglected or refused consent.” In light of the facts of the case, this burden was met. The landlord failed to respond within the necessary timeframe, no reasonable excuse was provided for its failure to respond, and attempted to trade consent for a clause for its benefit.

The Court allowed the appeal, set aside the application judge’s order, and granted the appellant’s application. The Court found that the landlord unreasonably withheld its consent to the lease assignment and ordered that the assignment be made.

Contact the Toronto Property Lawyers at Baker & Company for Effective Commercial Real Estate Advice

There are several standard terms within a commercial lease, which often includes provisions pertaining to a lease assignment. However, if a party to the lease does not uphold their obligations to the other party, disputes can quickly arise. The trusted real estate lawyers at Baker & Company have extensive experience drafting, reviewing and negotiating commercial leases. Our lawyers will help you review documentation and ensure that you understand your legal obligations before you sign any contract. Contact us online or by phone at 416-777-0100 to schedule a consultation with a member of our property law team and learn how we can help you.

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Commercial Real Estate

Off-Title Searches in Commercial Real Estate Transactions

Commercial real estate transactions involve countless complexities and considerations that require careful attention. Whether buying, selling, or leasing commercial property, understanding the key factors impacting the transaction’s success is crucial. This is why off-title searches are so important, as they reveal factors that could affect the buyer’s intended use of the premises. This blog will provide a high-level overview of some of the most commonly completed off-title searches in commercial real estate.

Off-title Searches

Although title searches are a feature of residential and commercial real estate transactions, the nature of the commercial property may necessitate comprehensive off-title searches. An off-title search aims to uncover potential issues, risks, or considerations that may impact the property’s value or future use that may not be evident from the title alone.

By conducting an off-title search, prospective buyers or investors can make more informed decisions and assess the potential risks of a commercial property transaction.

The following searches are commonly completed for various commercial real estate transactions.

Electrical Searches

Ensuring a property is properly maintained for electrical supply is paramount, especially in the commercial context. In order to properly run many types of businesses, large amounts of power must be delivered to the premises. Section 113(11) of the Electricity Act empowers the Electrical Safety Authority to issue orders for a broad range of work that the Authority considers “necessary or advisable for the safety of persons or the protection of property.” The Authority may be able to provide key information on whether the premises have been subject to problematic electric issues in the past.

Similarly, to complete the work mandated above, section 46(1) of the Electricity Act also codifies unregistered hydro easements that could exist over the property. Uncovering the existence of these easements is important to ensure legal compliance and prevent potential disputes or liabilities. Therefore, off-title searches involving the Electricity Act are essential in determining the property’s compliance with the legislation and could reveal important legal considerations before purchase.

Municipal Compliance

Unlike residential properties, which are specifically zoned for residential use, commercial properties can be permitted to be used in many ways. For example, within a commercial building, many different businesses often operate under the same roof. Despite the wide range of uses permitted within a commercial building, an off-title search can reveal whether the intended use would violate any by-laws and codes, specifically concerning setbacks, density, parking ratios, outside storage, and siting of garbage containers. This information can be valuable with respect to mitigating future liability.

Environmental

Whether or not the property has been used for any activity that could cause contamination, some type of environmental due diligence should always be completed. At any property, it is possible that the property could be contaminated by nearby businesses or industrial complexes, which could expose the buyer to liabilities under the applicable legislation. Although bringing a claim for damages based for fraudulent misrepresentation is possible, an environmental off-title search could help the buyer avoid this cost. For example, a search could be completed via the Environmental Site Registry under O. Reg. 153/04, which can provide information as to whether a record of site condition had been previously filed. If so, this record would include information, including a contamination assessment.

Safety Inspections

Due to their nature, many commercial properties also require particular attention for fire and health concerns. For example, a commercial kitchen is subject to the requirements contained within the Health Protection and Promotion Act, the Ontario Food Premises Regulation, and section 6.2.2.6 of the Ontario Building Code. When purchasing a property that includes a kitchen, ensuring that the premises comply with this legislation is prudent. The same goes for many types of businesses. In this context, off-title searches can ensure that the buyer can use the premises for the intended purpose and that any associated fire or health liabilities are exposed before purchase.

Corporate Existence Searches

A corporate existence search is an important due diligence check when purchasing a property from a corporation. It ensures that the entity is properly registered, active, and in good standing with the relevant regulatory authorities, the absence of which could complicate the legal validity of the transaction. Further, completing this check can uncover pending lawsuits, legal claims, or outstanding judgments against the corporation. This information helps uncover the potential liabilities that may affect the corporation’s ability to fulfill its obligations or impact the property transaction.

Overall, a corporate existence search provides valuable insights into a corporation’s legal status, potential liabilities, ownership, and compliance. This information is crucial for assessing the corporation’s ability to enter a real estate transaction and mitigating risks associated with its involvement.

Contact the Property Lawyers at Baker & Company in Toronto for Advice on Commercial Real Estate Transactions

At Baker & Company, our experienced real estate lawyers regularly advise our corporate clients on various real estate matters, including commercial real estate transactions, property disputes, and title searches. We help our clients with their business needs, ranging from small family businesses to large corporate enterprises. Our trusted lawyers will take the time to explain the law that applies to your situation and advise you of your options in order to obtain the best possible outcome. To speak with a member of our team regarding your real estate concerns, contact us at 416-777-0100 or contact us online to schedule an initial consultation.

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Commercial Leases Commercial Real Estate

Third-Party Indemnifiers Liable Despite New Commercial Tenant

Indemnity agreements are often included for commercial leases. These agreements allow the landlord to have their losses covered by a third party if the commercial tenant defaults. Indemnities are valuable to landlords as they act as security to ensure that the tenant fulfills their obligations, including paying rent that is due. 

In a recent case from the Ontario Superior Court of Justice, FCP (BOPC) Ltd. v. Callian Capital Partners Inc., the Court examined a scenario involving two indemnity agreements for a commercial lease. The Court provided valuable insight for commercial landlords and tenants on how indemnity agreements can impact a finding of damages for defaulting on a commercial lease. 

What Is An Indemnity Agreement?

An indemnity agreement in a commercial lease often involves a third party who agrees to cover any losses incurred by the tenant. The third party may be liable to pay the landlord for any losses upon default by the tenant, for example, in the event that the tenant fails to pay rent, unless the indemnifier has a contractual defense. 

Commercial Tenant Unable to Pay Ongoing Rent and Arrears

In the case of FCP (BOPC) Ltd. v. Callian Capital Partners Inc., the parties entered into a commercial lease agreement in 2017. When the COVID-19 pandemic began in March 2020, the tenant, Callian Capital Partners, defaulted on their rent payment and the landlord then took steps to take possession of the leased premises. 

After negotiations between the landlord and tenant, the parties signed an agreement that the tenant could remain at the premises if they fulfilled certain terms to pay their rent. Under the agreement, the tenant was to accept and acknowledge that the landlord could pursue further remedies if they could not pay their rent. Pursuant the agreement, the tenant was required to pay the landlord approximately $484,000 in unpaid rent. 

At the time of the hearing, the tenant had failed to pay approximately $366,000 in rent arrears. 

Tenant Continued to Use Premises Despite Not Paying Rent

The tenant claimed that, despite signing the agreement with the landlord, they could not be evicted, as they were approved for the Canada Emergency Rent Subsidy. However, the agreement between the parties contemplated that a stay of eviction would not prejudice the landlord if the tenant applied for the rent subsidy. 

Despite the tenant’s inability to pay rent, they continued using the premises daily. Also, the amount of rent subsidy collected by the tenant was never paid to the landlord. 

At the hearing, Justice Stewart held that neither the tenant nor the third-party indemnifiers had a defense to the landlord’s claim. Therefore, it was determined that the parties were jointly and severally liable for the tenant’s unpaid rent. Her Honour ordered that the parties pay the landlord $467,156.13 reflecting unpaid rent, in addition to costs and interest up to the date of the judgment. The landlord was also granted costs in the amount of $50,000. 

Indemnifiers Claim Lesser Amount Owed Due to New Tenant 

Following the decision, the landlord rented the premises to a new commercial tenant. The rent under the new lease was higher than that of the original lease. 

One year after the new tenant entered into the lease, the landlord commenced a separate action against the indemnifiers, which were two companies associated with the tenant. The landlord claimed that the third-party indemnifiers should be required to pay the tenant’s unpaid rent of over $400,000, plus unpaid rent for the 12 months during which the new tenant entered into the lease, which totalled approximately $506,000. The landlord claimed that despite the new tenant entering the premises with a new lease, the indemnifiers remained liable for the original monthly rent based on their indemnity agreements. 

Funds Seized From Indemnifier’s Bank Account

Approximately $478,000 was seized from one of the indemnifier’s bank accounts and the funds were held to the landlord’s credit. 

One indemnifier sought to set aside the judgment and prohibit the sheriff from paying out the judgment funds to the landlord. The indemnifier claimed that if the new tenant continued paying rent until the previous lease had expired, the landlord would have received approximately $727,000 more in rent than if the tenant never defaulted due to the increased rent amount. 

Landlord Incurred $500,000 in Expenses Due to Tenant’s Default

The Court noted that the landlord had incurred expenses over $500,000 to address the previous tenant’s default and arrange to lease the premises to a new tenant. These additional costs included:

  • costs of arranging for the sheriff and others, etc. to enforce the original judgment;
  • commission payable on the new lease;
  • improvements made to the premises to accommodate the new tenant; and
  • a 5-month abatement in base rent given to the new tenant as an inducement to enter the lease. 

One of the indemnifiers claimed that the rent received from the new lease was a mitigation of damages and, therefore, an order for damages must consider this. 

Landlord Not Required to Mitigate Losses 

The Court recognized that an increase in rent received from a subsequent lease would be deducted from a landlord’s claim. However, this principle would only apply to a landlord’s action against the tenant. 

Here, the landlord claimed damages against the indemnifiers under the indemnity agreements, which included stricter terms than those in the lease. In particular, the indemnity agreements did not require the landlord to mitigate damages. Further, if the landlord had mitigated their losses, it would not have reduced the indemnifiers’ obligations. 

Court Confirms Indemnifiers Liable to Pay Over $505,000 in Unpaid Rent

In arriving at its decision, the Court first highlighted the strong language used in the indemnity agreements. The Court determined that the indemnifiers remained liable to pay the amount of unpaid rent from the date of the judgment to the date on which the new lease commenced, which was close to $505,000. This amount was not reduced despite the landlord entering into a new lease with the new commercial tenant. 

The Court also ordered the funds, which were collected by the sheriff, were to be paid out to the landlord. 

The landlord was instructed to provide an annual reconciliation from 2023 through until 2028 when the lease ends, describing the difference between the rent collected from the new tenant and the rent payable under the original lease. If the difference between the amounts exceeds the rent, interest, or other costs incurred that are owed to the landlord, that amount would be reimbursed to the indemnifiers. 

The Commercial Real Estate Lawyers at Baker & Company in Toronto Regularly Advise Clients on Indemnity Agreements and Commercial Leases

Despite being a standard clause in commercial leases, indemnity agreements can significantly impact those involved. The skilled real estate lawyers at Baker & Company have extensive experience drafting, reviewing and negotiating commercial leases and can assist you in understanding your legal obligations before you sign any agreement. To schedule a confidential consultation with a real estate team member, please contact us online or by phone at 416-777-0100.

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Commercial Real Estate Property Disputes Real Estate Law

Innocent Purchasers Prevail in Power of Sale

When a mortgagor of a piece of real estate defaults on its payments, its mortgagee may initiate power of sale proceedings to recoup the debt it is owed. But what happens if the mortgagor arranges the sale of the property without the mortgagee being aware? This was the dilemma posed in the recent decision of the Ontario Court of Appeal in 2544176 Ontario Inc. v. 23947562 Ontario Inc.

The Mortgagor and Mortgagee sold the same property in separate transactions

In this case, one company (the Mortgagor) owned property that a mortgage had encumbered to the benefit of another company (the Mortgagee). The Mortgagee had purchased the property for about $5.4 million in October 2017. It financed its purchase with a mortgage of $3.79 million. Three years later, in November 2020, the Mortgagor had defaulted on the mortgage. The Mortgagee demanded payment. Eleven days after the Mortgagee’s demand, the Mortgagor entered into a conditional Agreement of Purchase and Sale to sell the property for $8.7 million without notifying the Mortgagee.

In December 2020, the Mortgagee began private power of sale proceedings. It served a notice of sale on the Mortgagor, who did not act during the 35-day standstill. As the closing date approached for the Agreement of Purchase and Sale entered into by the Mortgagor, it notified the Mortgagee in January 2021.

Mortgagee sold the property to third-party Purchaser with a new mortgage attached

The Mortgagee questioned the legitimacy of the sale and asked for a copy of the Agreement. The Mortgagor quickly gave this to them, but the Mortgagee failed to provide a default statement that the Mortgagor had requested. The day after, the Mortgagee listed the property for sale. However, because the Mortgagee had not provided the Mortgagor with a default statement, the Mortgagee’s enforcement rights were suspended as per section 22(3) of the Mortgages Act.

Days later, the Agreement of Purchase and Sale was finalized at a reduced price of $5.4 million. The sale was to close on March 31, 2021. The Mortgagor, again, did not inform the Mortgagee of the sale. Within a week, the Mortgagee entered into an Agreement of Purchase and Sale with a different Purchaser for $4.49 million. The Mortgagee assured the Purchaser on two occasions that they had complied with the legal requirements for a power of sale. The sale closed on March 2, 2021. The Purchaser granted a mortgage to a third-party lender for $4.3 million, with a second mortgage for $1 million going to the Mortgagee.

Section 22 of the Mortgages Act suspends enforcement rights if certain documents not shared with mortgagor on request

After title to the property was transferred to the Purchaser, the Mortgagor applied to have it set aside based on section 22 of the Mortgages Act. Section 22 reads:

Statement of arrears, expenses, etc.

22(2) The mortgagor may, by a notice in writing, require the mortgagee to furnish the mortgagor with a statement in writing,

(a) of the amount of the principal or interest with respect to which the mortgagor is in default; or

(b) of the nature of the default or the non-observance of the covenant, and of the amount of any expenses necessarily incurred by the mortgagee.

Idem

22(3) The mortgagee shall answer a notice given under subsection (2) within fifteen days after receiving it, and, if without reasonable excuse the mortgagee fails so to do or if the answer is incomplete or incorrect, any rights that the mortgagee may have to enforce the mortgage shall be suspended until the mortgagee has complied with subsection (2).

The judge at the initial hearing set aside the transfer

The Mortgagor had requested the Mortgagee produce the default statement, as outlined in section 22 of the Mortgages Act. Because the Mortgagee’s enforcement rights were suspended when the property was sold to the Purchaser, the application judge focused on whether the Mortgagee had transferred good title. The application judge believed himself to be bound by 1173928 Ontario Inc v. 1463096 Ontario Inc, which held that some sales are invalid when executed during a suspension of enforcement rights under section 22 of the Mortgages Act. He held that the purpose of the Mortgages Act was to:

“protect the mortgagees’ ability to take and enforce security to support lending. But it also imposes limits to protect mortgagors from the ‘well-known history of abuses of mortgage lenders,’ with s. 22 being added specifically to protect a mortgagor’s equity of redemption.”

The application judge determined that a breach of section 22 trumped any claims the Purchaser had under the Land Titles Act. The transfer of the title to the Purchaser was therefore set aside.

The Purchaser was an “innocent purchaser” protected by registration under the Land Titles Act

Upon appeal, the Court of Appeal sided with the Purchaser. Even though the Mortgagee’s enforcement rights were suspended when the transfer of title occurred, the Purchaser was an innocent purchaser with title registered under the Land Titles Act system. This is in line with the principles of the land titles system:

“The philosophy of a land titles system embodies three principles, namely, the mirror principle, where the register is a perfect mirror of the state of title; the curtain principle, which holds that a purchaser need not investigate the history of past dealings with the land, or search behind the title as depicted on the register; and the insurance principle, where the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. These principles form the doctrine of indefeasibility of title and [are] the essence of the land titles system[.]”

It was the Purchaser seeking to enforce rights, not the Mortgagee

At no time was the Purchaser given notice that there may have been any defects in the power of sale process. In fact, the Mortgagee had informed the Purchaser of compliance with the power of sale process on two occasions.

The Court of Appeal stated that the application judge had incorrectly interpreted section 22 of the Mortgages Act as an exception to the mirror principle of the land titles system. As far as the Purchaser knew, they had obtained good title to the property.

Moreover, the fact that the Mortgagee’s enforcement rights were suspended does not mean their substantive rights had also been suspended. It merely could not enforce the mortgage until it complied with the Mortgagor’s request for the default statement. In this case, the only party seeking to enforce rights was the Purchaser. For that, the appeal was allowed. The Mortgagor’s application to set aside the transfer was dismissed.

Contact the Baker & Company in Toronto for Experienced Real Estate Legal Services

At Baker & Company, our skilled real estate lawyers provide dynamic legal solutions and robust advice to clients on a variety of property disputes, including commercial real estate and title issues. We also represent clients in residential real estate issues, development projects, and leasing matters. To schedule a confidential consultation, contact us at 416-777-0100 or reach out online.

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Commercial Real Estate Real Estate Law

Courts Continue to Consider Relief from Forfeiture Cases Due to COVID-19

Public health regulations serving to stop the spread of COVID-19 have been an ongoing challenge for brick-and-mortar businesses that have struggled to remain afloat in the face of numerous closures. As a result, the courts continue to see a slew of cases relating to relief from forfeiture. In a previous blog, we discussed the specific case of Cherry Lane Shopping Centre Holdings Ltd. v Hudson’s Bay Company ULC Compagnie De La Baie D’Hudson Sri, where a British Columbia court ruled that the tenant, Hudson’s Bay Company (“HBC”), was required to pay rent despite the COVID-19 pandemic. However, the court also granted HBC relief from forfeiture, provided it pay rent as due. As we continue to see such relief from forfeiture cases, in this blog we consider the state of the law and the factors the courts consider in deciding whether to grant this equitable remedy.

What is Relief from Forfeiture?

Relief from forfeiture is an equitable remedy. It gives the court the power to excuse a party from the application of forfeiture which would otherwise operate against that party as a result of their failure to perform a covenant or a condition in a contract, or when a mistake has been made. In the commercial tenancy context, this failure to perform is typically the inability to pay rent.

The Power to Grant Relief from Forfeiture

In Ontario, the court’s authority to grant relief from forfeiture is found in subsection 20(1) of the Commercial Tenancies Act, which states:

Relief against re-entry or forfeiture

20 (1) Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor’s action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just. 

  The court also has jurisdiction to grant relief from forfeiture pursuant to section 98 of the Courts of Justice Act which provides:

Relief against penalties

98 A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

Factors Considered in Granting Relief

In assessing this form of relief, courts look at the entirety of the relationship between the parties, with regards to three primary criteria:

  1. The conduct of the applicant and the gravity of the breaches
  2. Whether the object of the right of forfeiture in the lease was essentially to secure the payment of money
  3. The disparity or disproportion between the value of the property forfeited and the damages caused by the breach

Courts will also consider the following factors:

  • The history of the relationship
  • Breaches of other covenants of the lease by the tenant
  • The tenant’s conduct or misconduct
  • Its good faith or bad faith or want of clean hands

In British Columbia, the court has also considered whether there are any intervening third-party rights.

In considering all of the above factors the court has previously stated:

What should not be lost sight of is that a landlord undoubtedly is always going to be able to point to misconduct by the tenant, else there would be no grounds for forfeiture in the first place, but the ultimate question is whether the court should exercise its equitable jurisdiction to relieve against the forfeiture imposed by the common law because it is an excessive remedy in all the circumstances.

Relief from Forfeiture for Non-Payment of Rent

In a situation where the default is based upon non-payment of rent, the court has stated it should consider the following criteria: (a) whether the tenant comes to court with clean hands; (b) whether there has been an outright refusal to pay rent; (c) whether the rent has been in arrears for a short or long time; and (d) whether the landlord has suffered a serious loss by reason of the moving party’s delay in paying rent

In situations of non-payment of rent, a court will generally grant relief from forfeiture if the tenant can make full payment of their arrears and continue payment of rent. As Justice Laskin has previously stated:

Assuming power in the Court to relieve against forfeiture for non-payment of rent in the present case, there is no good reason to refuse such relief when the landlord can be made whole by money payments and terms can be imposed, as they were, to require regularity in making payments on the due dates.

In one of the first cases in the pandemic dealing with relief from forfeiture, the courts demonstrated a willingness to consider rent defaults in the context of the pandemic in deciding whether to exercise their discretion to grant relief. While courts have been sympathetic to commercial tenants who have suffered as a result of the pandemic, they generally will not grant relief from forfeiture where such tenants were already in default pre-pandemic and where the tenants were not able to demonstrate that they could continue to meet their obligations under the lease. 

Serious Equitable Remedy to be Used Only Where Necessary

The courts have recognized that forfeiture is a very serious remedy. It is purely discretionary, fact-specific, and should be avoided where appropriate unless the tenant’s behaviour has been “persistent, substantial or reprehensible.”

A landlord, therefore, cannot terminate a lease for just any breach. Rather, a tenant’s misconduct must be of sufficient gravity to warrant termination.

Contact the Commercial Real Estate Lawyers at Baker & Company in Toronto for Assistance with a Commercial Lease

Closures due to the COVID-19 pandemic continue to present unique challenges for businesses. At Baker & Company, our team of commercial real estate lawyers has significant experience advising both landlords and tenants with respect to issues arising from commercial leases. To speak with a lawyer, contact us online or by phone at 416-777-0100.

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Commercial Real Estate Real Estate Law Residential Real Estate

Provincial Government Considering Private Lender Registry

The real estate market in Ontario, particularly in the Greater Toronto Area, seems to be ever-expanding, and with it, the demand for financing from purchasers. The private lending market, once a source for a small subset of Ontario mortgages, has also been growing. In 2017, it made up 8%, or approximately $10.6 billion, of Ontario’s mortgage transactions. This was up from $6 billion just three years prior. Due to the increase in private lending, the Ontario government is now considering a provincial registry for these lenders, in order to better regulate the industry, and better understand the level of risk in the private lending sector.

Lack of Information and Oversight

The recommendation for the registry comes from a report released at the end of September by the Ministry of Finance, which discussed concerns with respect to the lack of oversight and insight into the growing market.

The private lending market has gained traction in the last couple of years due to the implementation of stress tests for uninsured mortgages in 2018. Private lenders have become more popular with those facing financial difficulty, who may not qualify for a traditional bank-funded loan. The report indicates the need for better oversight into this industry, in a way that will enable the province to gain a much-needed glimpse into the role private lenders play in the provincial economy and housing market.

Money Laundering Concerns

There is also a growing concern that private lending could be a potential hotspot for money laundering, given similar issues found through recent investigations in British Columbia. The report encourages collaboration between the Financial Services Regulatory Authority of Ontario (FSRA) and the Ministry in order to create a registration system that would be mandatory for lenders who meet a certain threshold, and voluntary for those who don’t.

The report also suggests that the FSRA work with the Law Society of Ontario to create an exchange of information with respect to private lending facilitated by Ontario lawyers. The creators of the report would also like to see a requirement for lenders to periodically report their activities to a regulatory body.

Potential for Implementation

The provincial government is currently weighing the suggestions contained in the report, and considering implementing some of the recommendations as soon as next year. It will be interesting to see what if anything comes from this report. Currently, private lenders are often the only option for people who are already strained financially but are also often charging much higher interest rates than traditional regulated lenders. As a result, the private mortgage industry sees the highest rate of default across all mortgage lenders. Perhaps regulation could help to narrow this gap somewhat and help lessen the consumer’s risk when it comes to unregulated mortgage lenders. This remains to be seen.

Seek Experienced Legal Advice

Any person seeking to obtain a mortgage, whether through a regulated entity or a private lender, should seek the advice of a qualified real estate lawyer. Your lawyer can review all associated documentation with you and ensure that you are aware of your obligations before entering into a commitment. Defaulting on a mortgage is a demoralizing process that can affect your financial standing for years afterward. It’s best to have a full understanding of what you are committing to before signing.

At Baker & Company in Toronto, our real estate lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100or contact us online for a consultation.