Court File and Parties

COURT FILE NO.: CV-16-554472 DATE: 20160912 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Luis Melo, Applicant AND: 2297248 Ontario Ltd., Emile Ramlochan, Matthew Ryan Sloopka, and Kayla Marie Seah, Respondents

BEFORE: Carole J. Brown, J.

COUNSEL: Balpreet S. Lailna, for the Applicant Matthew Ryan Sloopka and Kayla Marie Seah, representing themselves

HEARD: July 29, 2016

Endorsement

[1] The applicant Luis Melo (“Melo”) is the mortgagee of property described as Unit 7, Level 11; Unit 47 Level C; and Unit 18, Level C, Toronto Standard Condominium Plan No 2250 and appurtenant interests, subject to and together with easements as set out at Schedule A in AT3075802; City of Toronto, PIN 76250-0243. On March 31, 2015, the applicant mortgagee and respondents 2297248 Ontario Ltd, as mortgagor, and Emile Ramlochan, as guarantor, entered into a mortgage registered in the Land Titles Office for the City of Toronto (No 66) as instrument AT3845972.

[2] On June 30, 2015, the numbered company mortgagor defaulted on the mortgage. Counsel for the mortgagee then commenced enforcement proceedings, including issuing a Notice of Sale under Charge for the property. The default has continued since June 30, 2015, with no payment received until June 2016, which was the only cheque received.

[3] On October 5, 2015, a first Notice of Attornment of Rents was served, with the second notice served on January 25, 2016. Thereafter, the respondents, Matthew Sloopka (“Sloopka”) and Kayla Seah (“Seah”), first contacted counsel for the applicant. Counsel for the applicant requested the tenancy agreement which had reportedly been signed between the mortgagor and Sloopka and Seah. No tenancy agreement was provided until May 16, 2016, when the tenancy agreement and an amendment to the agreement were provided.

[4] The tenancy agreement provided indicated that the mortgagor, through its principal Ramlochan, entered into the tenancy agreement on August 11, 2015, after the mortgagor defaulted on the mortgage.

[5] The applicant seeks an order declaring that the tenants, Sloopka and Seah, are occupants rather than tenants of the property or, alternatively, setting aside the tenancy agreement pursuant to the Mortgages Act, R.S.O. 1990, c. M.40, s. 52.

[6] Section 52 of the Mortgages Act provides:

(1) The Superior Court of Justice may on application by the mortgagee vary or set aside a tenancy agreement, or any of its provisions, entered into by the mortgagor in contemplation of or after default under the mortgage with the object of,

(a) discouraging the mortgagee from taking possession of the residential complex on default; or

(b) adversely affecting the value of the mortgagee's interest in the residential complex.

(2) In considering the application, the judge shall have regard to the interests of the tenant and the mortgagee.

[7] Pursuant to the jurisprudence, in order to have a tenancy agreement set aside, the applicant must satisfy a three-pronged test, as follows: (1) there must be a tenancy agreement entered into by the mortgagor; (2) the tenancy agreement must be entered into in contemplation of or after default; and (3) the tenancy agreement must have the object of either discouraging the mortgagee from taking possession or adversely affecting the value of the mortgagee's interest in the property.

[8] The mortgagee takes the position that all requirements have been satisfied such that the tenancy agreement should be set aside and the application granted. It is clear that the first two prongs of the test have been met. The tenancy agreement was entered into by the mortgagor on August 11, 2015, after the initial default on the mortgage on June 30, 2015. With respect to the third prong, the evidence indicates: that the respondents failed to provide particulars of the lease for several months, failed to attorn to rents pursuant to the notice, and failed to allow the mortgagee to inspect the property or show the property for sale. As a result of the tenancy agreement, the mortgagee has been unable to take possession of the property in order to ready it for sale. The equity in the property has been eroded as the sale of the property has been delayed.

[9] It is the position of the respondents that the tenancy agreement is legitimate. The respondents submit that the court does not have jurisdiction to set aside the lease because the mortgagee accepted their payment of the June rent, rendering the applicant a landlord. It is their position that the Residential Tenancies Act, S.O. 2006, c. 17 is the applicable statute, and that it takes precedence over the Mortgages Act. They argue that the mortgagee, by accepting the payment in June, is deemed to be the landlord such that the Residential Tenancies Act applies pursuant to s. 47 of the Mortgages Act. They argue that the applicant can only obtain possession in accordance with the Residential Tenancies Act, which provides that the Landlord and Tenant Board has exclusive jurisdiction to determine all applications under the Act with respect to all matters within its jurisdiction. They rely on ss. 3(4), 39 and 168 of the Residential Tenancies Act as well as the case of Fraser v. Beach [Beach v. Moffat] (2005), 75 O.R. (3d) (ONCA).

[10] The respondent tenants have conceded that, as late as July of 2016, they communicated with the respondent mortgagor Ramlochan for repairs required in their apartment and, therefore, continued to consider him (and his numbered company) the landlord.

[11] The respondents Sloopka and Seah state that they had no knowledge of the financial situation of the applicant or co-respondents, had no knowledge or proof of an agreement or mortgage between the parties and had no knowledge that the applicant was enforcing its rights under the Mortgages Act until May 2016. They state that they received no Notice of Attornment of Rents. They further state that the mortgagee has no right to inspect the unit, except for entering into the common areas of the residential complex and cite the Mortgages Act, s. 50(2). They request that the application against them be dismissed.

[12] The applicant maintains that the mortgagee, having accepted a payment, particularly where there is an assignment of rents, does not make the mortgagee a mortgagee in possession for purposes of the Mortgages Act. He argued that the mortgagee simply accepted the payment as a payment toward the amounts owing on the mortgage. He did not, at any time, exercise his powers in an attempt to control or manage the subject property.

[13] While there is no statutory definition of mortgagee in possession, “[t]he concept has been extensively canvassed in the common law”: First Burton Developments v. Peel Condominium Corp (1997), 8 R.P.R. (3d) 127 at para. 7 (Ont. Gen. Div.), aff’d [1999] O.J. No. 1117 (QL) (ONCA). The test, in essence, is whether the mortgagee has “taken the control and management of the mortgaged property out of the hands of the mortgagor”: Marriott and Dunn: Practice in Mortgage Remedies in Ontario, loose-leaf (2013-Rel. 2), 5th ed. (Toronto: Thomson Reuters Canada Ltd., 1995) at para. 46.6. The leading case on the definition of “mortgagee in possession,” Noyes v. Pollock (1886), 32 Ch. D. 53 (CA), held at p. 61:

In order to hold that a mortgagee not in actual possession is in receipt of the rents and profits, in my opinion it ought to be shown not only that he gets the amount of the rents paid by the tenants, even although he gets their cheques or their cash, but that he receives it in such a way that it can be properly said that he has taken upon himself to intercept the power of the mortgagor to manage his estate, and has himself so managed and received the rents as part of the management of the estate.

[14] This general approach has been adopted in Ontario: see e.g. First Burton Developments v. Peel Condominium Corp, [1999] O.J. No. 1117 (QL) (ONCA) (affirming the Ontario Court of Justice – General Division’s use of the Noyes test); Beckstead v. Ball (1960), [1961] O.R. 127 (Ont. H.C.). In North American Trust Co. v. Consumers’ Gas Co. (1997), 34 O.R. (3d) 35 at para. 18, the Ontario Court of Appeal cited Noyes as support for the proposition that “Taking possession is not a question of intention but of fact and collecting rents is not conclusive on this issue.”

[15] Whether a mortgagee’s actions suffice to take possession depends on “the nature of the mortgaged property”: Royal Trust Corp of Canada v. Gupta, [1997] O.J. No. 347 (QL) at para. 39 (Ont. Gen. Div.) [Gupta]. Where the mortgaged property is a large residential complex, the mortgagee may not be able to, or more likely not wish to, physically occupy every unit: Gupta at para. 40.

[16] For example, in one Ontario case, the mortgagee took possession of a residential complex by “serving notices of attornment on all tenants, changing the locks on the laundry machine moneyboxes, taking over management of the building, instructing the superintendent to report to it and undertaking building maintenance”: Royal Trust Corp of Canada v. 880185 Ontario Ltd. (2005), 30 R.P.R. (4th) 165 at para. 12 (ONCA). In one Alberta case, a mortgagee took possession through a pattern of conduct that included collecting rent, paying for utilities, attending to certain tenant needs, and performing certain minor repairs: Unican Development Corp. v. Settlers Savings & Mortgage Corp, [1984] A.W.L.D. 139 at para. 19 (ABQB).

[17] The case law provides little guidance on possession of single residential units. In one Northwest Territories case, the mortgagee obtained possession of a single residential unit by changing the locks: CIBC Mortgage Corp v. Hamilton, 1997 CarswellNWT 79 at para. 11 (NWTSC). In that case, the tenant had already vacated the unit, facilitating the mortgagee’s taking possession.

[18] The applicant in the present case sought attornment of rent and received one month’s rent payment from the respondents. There is no other evidence on this record that would support a finding that the applicant had conducted himself in such a way as to be deemed to be a mortgagee in possession. Such conduct may have included the applicant taking over utility payments and maintenance responsibilities for the unit, for example. Instead, the applicant played no role in managing the property and sought to rid himself of the property. The respondents corresponded with the mortgagor landlord as late as July, 2016 for repairs to be effected in the unit.

[19] There are not sufficient indicia of possession on this record to establish that the applicant mortgagee took possession of the respondents’ unit. There is insufficient evidence to establish that the applicant mortgagee, Melo, became a mortgagee in possession of the mortgaged property.

[20] In my view, the case law and treatises indicate that the mortgagee’s actions in this case were not sufficient to place it in possession of the mortgaged property. I am of the view that, in the circumstances of this case, the mortgagee is not and cannot be considered to be a mortgagee in possession, and therefore cannot be considered or deemed to be a de facto landlord.

[21] I am satisfied that, in the circumstances of this case, this Court has jurisdiction to vary or set aside a tenancy agreement entered into after default by the mortgagor on a mortgage, where the agreement would have the object of discouraging the mortgagee from taking possession or adversely affecting the value of the mortgagee's interest in the property. In this case, the mortgagee has been prevented from taking possession of the unit following default or proceeding with the sale of the property pursuant to the standard terms of the mortgage. The tenancy agreement/lease has further affected the value of the mortgagee's interest in the property by delaying the said sale of the property.

[22] Accordingly, I am satisfied that the tenancy agreement should be set aside and a writ of possession issued.

[23] As regards the tenants, Sloopka and Seah, they are to vacate the property within 45 days of the issuing of the writ of possession. This should provide them the time to locate alternate rental accommodation. Further, as regards the tenants, it is ordered that the mortgagor reimburse them for all monies which may be owing to them, including the deposit for the last month's rent, if applicable.

Costs

[24] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown, J. Date: September 12, 2016