COURT FILE NO.: 4088/19

DATE: 2019-10-25

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MORTGAGE COMPANY OF CANADA INC. AND PRAYRNA SHARMA Applicants

– and –

KHEERAN SINGH, DIANE SINGH, AMIT SANGRAM SINGH, NANDRANINE SINGH also known as NANDRANIE SINGH AND ANDY RICHARD BADRINARAIN Respondents

Jeffrey Kukla, for the Applicants

Kheeran Singh, Self-Represented and for Diane Singh Amit Sangram Singh, Self-Represented and for Nandranine Singh Andy Richard Badrinarain, Self-Represented

HEARD: October 24, 2019

REASONS FOR JUDGMENT

gray j.

1This is an application pursuant to s.52 of the Mortgages Act to set aside an alleged tenancy of premises at 69 Vanderpool Crescent in Brampton.

2For the reasons that follow, the application is granted on certain terms.

Background

3This matter has a long history.

4The applicants are the mortgagees under a second mortgage on the Vanderpool property, which was executed in April, 2017. It secures the principal sum of $260,000, and the first payment date was May 1, 2017. The maturity date was April 1, 2018. It calls for monthly payments of $2,814.50. It was not discharged on maturity, and it has been in default since that time.

5There is also a prior mortgage on the property, and the applicants have paid the first mortgagee certain funds to keep that mortgage in good standing.

6Following default, on June 1, 2018, the applicants commenced an action against the respondents, Kheeran Singh and Diane Singh seeking repayment of the mortgage and possession of the property. The respondent Kheeran Singh was served personally with the Statement of Claim on August 1, 2018. At the same time, the process server confirmed that he spoke to Kheeran Singh who verified that only Kheeran Singh occupied the property.

7A Statement of Defence and Counterclaim was served on August 2, 2018. The Statement of Defence and Counterclaim alleged that the property was tenanted.

8The applicants commenced a motion for summary judgment which was originally returnable on October 4, 2018. That motion was ultimately adjourned ten times before it was heard on May 1, 2019. On June 20, 2019, lengthy reason for judgment were issued by Coats J. in which she granted summary judgment for payment and for possession.

9Justice Coats specifically held that based on the evidence before her, the property was not tenanted. She noted that the terms of the mortgage commitment, signed by Kheeran Singh, provided that Mr. Singh was not to rent or lease the property without the prior written consent of the mortgagees, and at no time did the mortgagees consent to a tenancy nor was any request made in that regard. She noted that Mr. Singh did not provide a lease or the details of any tenants – no names nor contact information. She also noted that Mr. Singh stated that his current address at that time was on McVean Drive in Brampton.

10Kheeran and Diane Singh appealed, first to the Divisional Court, and then to the Court of Appeal. They sought a stay before a judge of the Court of Appeal, which was denied by Pardu J.A. on August 14, 2019. They sought a review of the order of Justice Pardu, which was never perfected. Ultimately, the Court of Appeal dismissed the appeal for delay.

11On September 13, 2019, Kheeran and Diane Singh served a Notice of Motion in this Court seeking an order staying the enforcement of the Writ of Possession and an order requiring the mortgagees to attorn the rents of the alleged tenants on the property. The matter came before me and I dismissed the motion.

12On September 23, 2019, Kheeran and Diane Singh brought a further motion in this Court for the same relief, which was refused by Gibson J.

13When the sheriff, assisted by the police, attempted to execute the Writ of Possession, they were confronted by what they were told was a lease of the property, and by tenants apparently living there. Accordingly, the sheriff refused to execute the Writ of Possession. This application to set aside the tenancy then followed.

14The respondents have now tendered a lease, in writing, which was made in duplicate on February 9, 2019. It was registered on title on February 27, 2019. It purports to provide for a term of five years from June 1, 2018 (the alleged date of occupancy) to be renewed automatically unless terminated by either party pursuant to the lease. It calls for the payment of $800 per month. Pursuant to paragraph 12 of the lease, the landlord is to pay municipal property taxes. Wording in that paragraph that would require the tenants to pay gas, oil, water, sewer and electric light charges is struck out.

15Pursuant to paragraph 25 of the lease, the tenants undertake to repair the premises in the amount of $36,000. It is also stated "[a]ny additional repairs may lead to further deductions of the rent or otherwise paid by the landlord by other arrangement."

16The applicants, in their affidavit material, depose that they first learned that a lease had been registered on title on August 7, 2019 after receiving a motion record from Kheeran and Diane Singh.

17In an email to counsel for the applicants dated September 20, 2019, the respondent Badrinarain states that he had been renting the property for approximately two years (ie: since 2017).

18The applicants, in their affidavit material, note that the rent of $800 per month is $5,323.07 less than the monthly mortgage payments owed each month on the first and second mortgages.

19In their responding material, the respondents have filed drivers' licences that show that Amit Singh and Nandranine Singh reside at 69 Vanderpool Crescent. However, those drivers' licences were issued quite recently.

20The respondents have filed material that suggests that there is a side agreement under which the tenants are to pay for renovation and repairs at the property in the amount of $92,360 plus HST. They have tendered a letter dated August 2, 2018 from a purported builder suggesting that the project is to design and to construct a two-bedroom basement apartment, which would take approximately six to eight weeks to be completed. No evidence has been tendered to suggest that the work has actually been done, and there is no explanation as to why this was not referred to in paragraph 25 of the written lease that was signed on February 9, 2019 and registered on February 27, 2019.

Submissions

21Mr. Kukla, counsel for the applicants, submits that I should grant the application, and make an order pursuant to s.52 of the Mortgages Act setting aside the tenancy.

22Mr. Kukla submits that the circumstances are such that I should draw an inference that the tenancy was entered into with the intent that it seriously interfere with the interests of the applicants. Specifically, it was entered into in order to discourage the applicants from taking possession of the property or adversely affecting the value of the applicants' interest in the property.

23Mr. Kukla notes that even accepting the suggestion that occupancy of the property occurred on June 1, 2018, this was after default under the mortgage. The rental payments of $800 per month are a mere fraction of what is owing monthly on the first and second mortgages, and indeed is a fraction of the payments required on either one of them.

24Kheeran Singh submits that the application should be dismissed. He acknowledges that he and his wife are in default under the mortgage, and that a Writ of Possession in favour of the applicants should issue. However, he submits that if the applicants take possession of the property, they must take it subject to the existing lease and must remain bound by the lease.

25Mr. Singh submits that the lease is perfectly legitimate and is binding according to its terms.

26Amit Sangram Singh and Andy Richard Badrinarain, two of the tenants, submit that they have done nothing wrong, and the lease under which they occupy the property is perfectly valid. They submit that no order should issue requiring them to vacate the property.

Analysis

27Section 52 of the Mortgages Act provides as follows:

Application to set aside tenancy

52 (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.

Idem

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

28As I noted in Duca Financial Service Credit Union Ltd. v. Osundina, 2019 ONSC 3358, at para. 21, there is relatively little jurisprudence interpreting these provisions. The relevant tests under the legislative provisions were summarized by C.J. Brown J. in Melo v. 2297248 Ontario Ltd, 2016 ONSC 4877, at para. 7, as follows:

Pursuant to the jurisprudence, in order to have a tenancy agreement set aside, the applicant must satisfy a 3-pronged test, as follows: (1) There must be a tenancy agreement entered into by the mortgagor (2) A 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 mortgagees interest in the property.

29As pointed out by Murray J. in Bank of Montreal v. Smith (2008), 71 R.P.R. (4th) 52 (Ont. S.C.J), at para. 26, it is not enough to simply show that the lease constitutes a bad deal for the mortgagee. It must be shown that the lease was entered into with the object of discouraging the mortgagee from taking possession or with the object of affecting the value of the mortgagee's interest in the property.

30As I noted at para. 26 of Duca Financial Service, it would be a rare mortgagor who would candidly admit that his or her object in entering into the lease was to cause difficulty for the mortgagee. However, inferences may be drawn from the surrounding circumstances. At para. 28, I noted that such circumstances could include:

(a) the amount of the rental payments as compared to the mortgage payments and other expenses;

(b) the relationship of the tenant to the mortgagor;

(c) the timing of the lease in relation to the date of default.

31In this case, the rental payments as compared to the mortgage payments are a fraction of the mortgage payments. Furthermore, the lease was clearly entered into after default under the mortgage. There is little doubt, in my view, that the lease was entered into with the object of discouraging the mortgagee from taking possession or adversely affecting the value of the mortgagee's interest in the property.

32It is apparent that s.52 of the Mortgages Act requires a balancing of interests, as among the mortgagee, the mortgagor, and any tenants. The Court must exercise its discretion taking all of the various diverging interests into account. If an order under the section is appropriate, the Court may "vary" or "set aside" a lease. The appropriate remedial response will depend on how the various interests are balanced.

33The relationship of the tenant to the mortgagors can be significant. Where there is a close familial relationship, or business relationship, an inference can be drawn that the tenant has conspired with the mortgagor to adversely affect the mortgagee's interests. In such a situation, it can be readily concluded that there is little need to consider the tenant's interests, and an order can be issued simply setting aside the tenancy.

34However, where there is no apparent relationship between the mortgagor and the tenant, different considerations come into play.

35As I read the provisions of s. 52 of the Mortgages Act as a whole, it is clear that it is the intention of the mortgagor that governs the issue of whether the court has authority to make an order under the section. That is so whether or not the tenant is an innocent party.

36However, as required by s.52 (2), the judge hearing the application must have regard to the interests of the tenant. That will be important where the tenant is an innocent party. Where the tenant has entered into a lease in good faith, the tenant's interests must be given greater consideration.

37In this case, the applicants submit that there are circumstances that should cast doubt on the good faith of the tenants. They point out that in other proceedings, evidence was tendered that purported to show that the tenants in this case were alleged to be tenants of another property owned by Kheeran Singh.

38While that may be so, the evidence is not clear. In the final analysis, I am not prepared to find that the tenants are not acting in good faith. Thus, I conclude that they are innocent parties and have entered into what they believed to be a legitimate lease.

39That being the case, there are a range of options available that would take into account the legitimate interests of the tenants. They range from leaving the lease in place, to altering the terms of the lease so as to make it more consistent with the interests of the mortgagee, to providing for a relatively early termination date.

40In this case, I am not prepared to simply leave the lease in place. While the terms of the lease are clearly advantageous from the perspective of the tenant, they are entirely unpalatable from the perspective of the applicants. At this point, the applicants are receiving nothing on account of their mortgage, and are paying out a significant amount each month in order to keep the first mortgage in good standing. Where, as here, the lease was entered into with the object of adversely affecting the mortgagees' interests, it would be unfair to simply leave the lease with its unpalatable terms in place.

41I do not think varying the terms of the lease, perhaps to increase the monthly payments, would be appropriate either. The tenants have entered into a lease on the expectation that the rent will be $800 per month, and I do not think it would be fair to them to increase that amount significantly.

42In the final analysis, I think the best option is to terminate the lease within a reasonable period. This will give the tenants an opportunity to secure other accommodation and will be less disruptive than simply terminating the lease now. In the circumstances, I think a period of approximately three months would be appropriate. I order that the lease terminate on January 31, 2020. I order that the tenants vacate the property on or before that date.

43Effective February 1st, 2020, I order that the sheriff execute the outstanding Writ of Possession as against all occupants, including any tenants, and I order that the police assist the sheriff if necessary.

44I will invite written submissions as to costs, not to exceed three pages together with a costs outline. Mr. Kukla will have five days to file submissions, and the respondents will have five days to respond. Mr. Kukla will have three days to reply.

Gray J.