Court File and Parties

COURT FILE NO.: CV-22- 00687583-0000 DATE: 2022-12-08 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CANADIAN IMPERIAL BANK OF COMMERCE, Applicant – and – ALEJANDRO GONZALEZ PENA and all other Tenants/Occupants of the premises known municipally as 3 NAVY WHARF, SUITE 2706, TORONTO, ONTARIO, M5V 3V1, Respondents

BEFORE: Justice E.M. Morgan

COUNSEL: James Butson, for the Applicant Amin Dana and Sarah Soerensen, tenants, on their own behalf

HEARD: December 7, 2022

APPLICATION FOR POSSESSION of property

The debt and security

[1] The Applicant is a lender and the Respondent, Alejandro Gonzalez Pena, is a borrower under a CIBC Home Power Plan – Line of Credit and Mortgage Loan Agreement dated February 15, 2017 (the “Loans”). On or about November 15, 2021, Mr. Pena defaulted on repayment of the Loans. The default continues until now.

[2] The terms of the Loans provide that in the event of default, the entire balance of the Loans becomes due and payable. As of March 30, 2022 – the date on which demand for full payment was made by the Applicant – Mr. Pena owed a total of $331,341.05. He has not defended the Applicant’s claim for repayment.

[3] The breakdown of Mr. Pena’s debt as between the two Loan instruments is as follows: a) in respect of the CIBC Home Power Plan – Mortgage Loan Agreement (No. 9082.1), Mr. Pena is liable to pay the Applicant $274,463.55 and interest thereon at the rate of 2.77% per annum from March 30, 2022 to the date of judgment or payment; and b) in respect of the CIBC Home Power Plan Line of Credit Loan (No. 52***26), Mr. Pena is liable to pay the Applicant $56,877.50 and interest thereon at the rate of 3.2% per annum from March 30, 2022, to the date of judgment or payment.

[4] As collateral security for the Loans, Mr. Pena gave the Applicant a Charge/Mortgage of Land (the “Charge”) on the lands municipally known as 3 Navy Wharf, Suite 2706, Toronto, ON M5V 3V1 (the “Property”). The Charge was registered as Instrument No. AT4510457 on the 13th day of March, 2017, in the Land Registry Office for the Land Titles Division of Toronto (No. 80) Toronto. It secured the principal sum of $416,000.

[5] The Standard Charge Terms for the Charge provide, in part:

THE Chargee, on default of payment by the Chargor for at least fifteen (15) days, may, on at least thirty-five (35) days' notice enter on and lease the land or on default of payment by the Chargor for at least fifteen (15) days, may, on at least thirty-five (35) days’ notice enter on and sell the land. The Chargee may lease or sell the land without entering into possession thereof.

[6] The Standard Charge Terms further provide that the Chargee may pay all premiums of insurance, common expenses, and all taxes and rates which shall from time to time fall due and be paid in respect of the charged premises, and that such payments together with all costs, charges and expenses on a substantial indemnity basis which may be incurred in taking, recovering and keeping possession of the said lands, and generally in any other proceedings taken in connection with or to realize upon the security shall be, with interest at the specified rates, a charge upon the said lands and any such amounts paid by the Chargee shall be added to the debt secured and shall be payable forthwith.

The Applicant’s enforcement efforts

[7] On April 12, 2022, the Applicant served on Mr. Pena a Notice of Sale Under Mortgage and Notice of Intention to Enforce Security pursuant to section 224(1) of the Bankruptcy and Insolvency Act. On August 2, 2022, the Applicant’s property manager attended at the Property and posted a lock change notice to which there was no response. On or about August 17, 2022, the property manager re-attended at the Property and posted a second lock change notice. Mr. Pena’s response, again by email, was to threaten to call the police.

[8] Mr. Pena responded to these Notices by email, claiming to be out of the country. He also claimed that his family members were residing in the Property. This latter claim appears to be untrue. In fact, it turns out that Mr. Pena, unbeknownst to the Applicant, rented the Property to arms-length tenants, Amin Dana and Sarah Soerensen. Mr. Dana and Ms. Soerensen are not family members of Mr. Pena’s and are in no way associated with him other than being tenants of the Property.

The tenancy

[9] Mr. Dana and Ms. Soerensen were served with notice of the hearing of the present Application and appeared in person at that hearing. They produced their lease for the Property dated July 19, 2022, signed by Mr. Pena as landlord and themselves as tenants (the “Lease”). They explained that leasing residential properties in Toronto is very competitive, and that in order to obtain the Lease they have paid Mr. Pena $30,000 in advance to rent the Property as their residence for a year.

[10] There is no evidence suggesting that Mr. Dana and Ms. Soerensen are anything but bona fide purchasers for value of a leasehold interest in the Property. The Lease was presented to them and negotiated on Mr. Pena’s behalf by a real estate brokerage firm. In entering the Lease, they had no notice of Mr. Pena’s default under the Loans or of the Applicant’s enforcement proceedings under the Charge.

[11] I am faced with two innocent parties – the Applicant as lender/chargee and Mr. Dana and Ms. Soerensen as tenants – both of which were manipulated and apparently defrauded by Mr. Pena. Generally speaking, the court in its equitable function protects bona fide purchasers such as Mr. Dana and Ms. Soerensen who were in no position to investigate or otherwise discover the rogue actor’s fraud: Lawrence v. Maple Trust Company (2007), 2007 ONCA 74, 84 OR (3d) 94 (Ont CA).

[12] It is long established in English and Canadian law that courts “will not take an estate from a purchaser who bought for valuable consideration without notice”: Pilcher v Rawlins (1872) 7 Ch App 259, 273 (CA). As the Supreme Court of Canada put it in i Trade Finance Inc. v. Bank of Montréal, 2011 SCC 26, [2011] 2 SCR 360, at para 60:

The full name of the equitable defence is ‘bona fide purchase of a legal interest for value without notice of a pre-existing equitable interest.’ The effect of the defence is to allow the defendant to hold its legal proprietary rights unencumbered by the pre-existing equitable proprietary rights. In other terms, where the defence operates, the pre-existing equitable proprietary rights are stripped away and lost in the transaction by which the defendant acquires its legal proprietary rights.

[13] The analysis of this doctrine entails a comparison of the equities as between the two innocent parties. Here, the Applicant had already commenced enforcement proceedings when they entered the Lease. While the Charge itself was registered on title to the Property, the record contains no indication that there was anything on title to give notice of the default or of the Applicant’s enforcement efforts to potential buyers/tenants. As prospective tenants, Mr. Dana and Ms. Soerensen appear to me to have made “such inspections as ought reasonably to have been made”: Kingsnorth Finance Trust Co. Ltd. v. Tizard, [1986] 1 WLR 783.

[14] While I do not fault the Applicant for waiting a number of months after Mr. Pena’s default to see if he would cure it, the Applicant let more than half a year go by before it did anything. This lapse of time left room for Mr. Pena to go rogue, as it were, and lease the Property out from under the Applicant’s grasp.

[15] Thus, while the Applicant and Mr. Dana/Ms. Soerensen are all innocent parties, Mr. Dana and Ms. Soerensen are slightly more innocent. The Applicant could have expedited its remedies and be slightly more vigilant as to what was happening at the Property over which it had a secured Charge. By contrast, Mr. Dana and Ms. Soerensen were not able to protect themselves at all from Mr. Pena’s actions. In a contest between innocent parties, this slight advantage held by the Applicant tips the equities toward the party without the advantage: CIBC Mortgages Inc. v. Computershare Trust Co. of Canada, 2015 ONSC 543.

[16] This conclusion also accords with the relevant portion of the Mortgages Act. On an Application to set aside a tenancy in a mortgaged premises, section 52 provides:

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.

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

[17] Counsel for the Applicant understandably stresses section 52(1), since it appears to describe the salient features of the present case. Mr. Pena leased the Property in the wake of the Applicant’s attempts to enforce its rights – in the statute’s words, “with the object of discouraging the mortgagee from taking possession of the residential complex on default”. But he makes no mention of section 52(2) of the Mortgages Act, which speaks directly to the issue at hand.

[18] Section 52(2) directs me in mandatory language (“the judge shall have regard…) to take into account the interests of the tenant as well as the mortgagee/chargee. As tenants, Mr. Dana and Ms. Soerensen have roughly half of the term of the Lease to go before the term ends. Either they have a leasehold interest and can remain in possession for the balance of their term, or they lose their leasehold and are ordered out of the Property. For them, it is a matter of losing their personal, albeit temporary home.

The reciprocal rights

[19] For the Applicant, the balance of the tenants’ lease represents several more months of accumulating interest on Mr. Pena’s default before it can sell the Property and recoup its loss. The Applicant will, of course, add all accumulated interest to the debt owed to it by Mr. Pena.

[20] Since the Applicant has the Property as security, it has a potential economic remedy for its economic loss; the tenants, on the other hand, will have no viable remedy if they lose their paid-for leasehold. It therefore seems to me that the only way to take both sides’ interests into account is to allow Mr. Dana and Ms. Soerensen to remain in the Property for the balance of the term of the Lease.

[21] The Applicant can add the $30,000 in rent collected by Mr. Pena to the debt that Mr. Pena owes it. If there are other expenses relating to the Property on which Mr. Pena has been delinquent – for example, the evidence suggests that he may have been in arrears of his condominium fees – these, too, may have to be borne by the Applicant and, if so, added to Mr. Pena’s indebtedness to the Applicant.

[22] As specified in section 48(1) of the Mortgages Act, “No person exercising rights under a mortgage may obtain possession of a rental unit from the mortgagor’s tenant except in accordance with the Residential Tenancies Act, 2006.” All duties other than the payment of rent that are owed as between the tenant and the landlord under the Lease and applicable landlord-tenant law are now owed as between the Applicant and Mr. Dana/Ms. Soerensen.

Disposition

[23] But for Mr. Dana’s and Ms. Soerensen’s tenancy, the Applicant is entitled to possession of the Property. The Applicant shall have full possession of the Property at the conclusion of the term of the Lease that is set to end on July 22, 2023. In the meantime, Mr. Dana and Ms. Soerensen shall remain tenants of the Property.

[24] Until the termination of the Lease, the Applicant shall be the landlord of the Property, replacing Mr. Pena as landlord under the Lease. Mr. Pena shall have no further right to possession of the Property, whether under the Lease or otherwise.

[25] The Applicant and Mr. Dana/Ms. Soerensen shall assume the roles of landlord and tenant vis-à-vis each other for all purposes for the duration of the Lease, except for the payment and receipt of rent which has already been paid in advance by Mr. Dana and Ms. Soerensen. As indicated above, the rental amount and other expenses incurred Mr. Pena may be added to the debt owed by Mr. Pena to the Applicant.

[26] There will be no costs of this Application as between the Applicant and Mr. Dana and Ms. Soerensen.

[27] The Applicant is entitled to its costs as against Mr. Pena. It is seeking a total of $6,134.50. That is reasonable under the circumstances. Mr. Pena shall pay the Applicant $6,134.50 in costs for this proceeding, inclusive of all fees, disbursements, and HST.

Date: December 8, 2022 Morgan J.