TorontoLecture Series—2013Wednesday, September 18, 2013Toronto Congress Centre

Essential Practice Tips for RealEstate Lawyers

Presented by: Michael J. Lamb, J.D.

Michael John Lamb, J.D. Ph: 519 645 1104Barrister, Solicitor & Notary Public Fax: 519 645 1107102-101, Cherryhill Blvd., Email: lamblaw@on.aibn.comLondon, Ontario,N6H 4S4.

Mr. Lamb graduated from University of Western Ontario in 1985 with a Bachelor of Lawsdegree (converted in 2009 to Juris Doctor) and called to the Bar of Ontario in 1986 and is amember in good standing with the Law Society of Upper Canada and the Middlesex LawAssociation.

Mr. Lamb has a private law practice at Cherryhill on Oxford Street in London, Ontario, withan emphasis on real estate law. His litigation experience in real estate matters includesdefending the rights of pet lovers to visit the graves of deceased pets and a singleappearance at the Court of Appeal to argue an adverse possession/prescriptive easementwar between neighbours!

He has been an Adjunct Professor of Real Estate Law at the Faculty of Law, University ofWestern Ontario since 1992 and has been nominated for teaching awards twice during thattime. He is currently listed on the University of Western Ontario website as an expert in realestate law.

Mr. Lamb is a Member and former President of the Canadian Condominium Institute(London Chapter) and has been involved in lecturing to condominium owners, managersand directors on condominium issues.

In addition to speaking to various other organizations including a recent presentation to theFraud Section of the London Police Service he has been quoted in the London, FreePress, Globe & Mail and interviewed by C.B.C. radio.

His dream of being part of the PGA tour was lost long ago but he still likes to think he playsa mean game of golf!

March, 2013

TABLE OF CONTENTS

Toronto Lecture Series – September 18, 2013

Essential Practice Tips for Real Estate LawyersMichael J. Lamb, J.D.

Barrister, Solicitor & Notary Public

Introduction 3

Planning Act Problems 3Vendors & Purchasers Act 3Validation Certificate 4Section 50(22) Statements 6Prior Consent 9Exempting Bylaw 9Pre June 15th 1967 10Vendor Take Back mortgages 10Adjoining lands in trust 11

Access 13

Surveys Act Section 57 13Types of Access 14Road Access Act 15Overburdening use 17Title Insurance option 18

Power of Sale: Priorities 19

Executions 19Condominium Act Liens 20Utilities 22Realty Taxes 23Corporations 24Vendor Liens 25Mortgage Transfers/Merger 26Fixtures 27Canada Revenue Agency “Super Lien” 31Leases – Commercial 32Leases – Residential 32Tenant Deposits 32Planning Act 33

Private Mortgages 35

Prohibition against acting for both lender & borrower 35Forms 9D & 9E 37

Conclusion 37

Appendix: Road Access Act 38-41

Checklist - Power of Sale purchases 43

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Essential Practice Tips for Real Estate Lawyers

Michael J. Lamb J.D.

Barrister, Solicitor & Notary Public

In my 2012 paper I mentioned the old saying that practicing real estate law is likelooking for a needle in a hay stack without being sure there is one in the first place!When Stewart Title Guaranty Company asked me to present papers in 2011 and 2012 Ifigured I had found most of those needles. Well, here we are in 2013 and I have founda few more to share with you. In this paper I would like to provide a few commentsabout the following topics:

Planning Act problems – how do we resolve them?

Access to real estate - i.e. road access

Powers of Sale – what needs to be deleted?

Private Mortgages - Independent Legal Advice and other issues

Planning Act Problems:

Vendors and Purchasers Act

Perhaps one of the most difficult issues which can arise from time to time in a realestate practice is how to recognize and deal with Planning Act violations. Thejurisprudence is full of decisions where a party has, unfortunately, relied upon adviceconcerning the implications of the Planning Act in a transaction as a basis forterminating the agreement only to be proved wrong. The result of course is a finding ofbreach of contract and, often, an award of damages. It seems to me that perhaps themost important comment I can make is that lawyers should consider the advantages ofusing the Vendors and Purchasers Act R.S.O.1990 c. V.2 . In my 2012 Stewart TitleLecture Series paper I mentioned this little four section statute in the context ofrequisitions and of course a Planning Act violation would naturally lead to such arequisition. It is worth repeating then that an Application under this statute pursuant toSection 3(1) would be preferable to a full blown Action which will inevitably mean thatone party will lose and face the consequences.

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Section 3 reads as follows:

Applications to court as to requisitions, objections, compensation, etc.

3. (1) A vendor or purchaser of real or leasehold estate or the vendor’s orpurchaser’s representative may at any time and from time to time apply to theSuperior Court of Justice in respect of any requisition or objection or any claimfor compensation or any other question arising out of or connected with thecontract, except a question affecting the existence or validity of the contract, andthe court may make such order upon the application as may be considered just.R.S.O. 1990, c. V.2, s. 3 (1); 2006, c. 19, Sched. C, s. 1 (1).

In the White v. Daffern decision referred to later in the paper (dealing with Power of Saleissues) the Court was dealing with a Motion to determine a question of law which wascentral to the action which the Plaintiffs had brought against their solicitor. The lawinvolved was the application of Section 50(18) and 50(22) of the Planning Act to sales ofadjoining parcels by a mortgagee under Power of Sale. However, what is of interesthere is that an earlier related transaction had been the subject of a Vendors andPurchasers Act application where the Court found the requisition regarding PlanningAct compliance had been satisfactorily answered and the transaction proceeded toclose. In White further sale transactions became the focus of a full blown Action. Thetiming and costs clearly favour the use of this little statute.

Of course, not all Planning Act problems can be resolved in that manner; we may needto look for alternatives. One such avenue is to use Section 57 of the Act which providesas follows:

Validation certificate

57. (1) A council authorized to give a consent under section 53, other than acouncil authorized to give a consent pursuant to an order under section 4, may issue acertificate of validation in respect of land described in the certificate, providing that thecontravention of section 50 or a predecessor of it or of a by-law passed under apredecessor of section 50 or of an order made under clause 27 (1) (b), as it read on the25th day of June, 1970, of The Planning Act, being chapter 296 of the Revised Statutesof Ontario, 1960, or a predecessor of it does not have and shall be deemed never to

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have had the effect of preventing the conveyance of or creation of any interest in suchland. 1993, c. 26, s. 63; 1996, c. 4, s. 30 (1).

Limitation

(2) A certificate of validation under subsection (1) or an order of the Ministerunder subsection (3) does not affect the rights acquired by any person from a judgmentor order of any court given or made on or before the day on which the certificate isissued or order is made. 1993, c. 26, s. 63.

Territorial district

(3) If the Minister has authority to give consents under section 53, the Ministermay by order exercise the powers conferred upon a council by subsection (1) in respectof land in a territorial district. 2002, c. 17, Sched. B, s. 23.

Proviso

(4) No order shall be made by the Minister under subsection (3) in respect ofland situate in a local municipality unless the council of the local municipality in whichthe land is situate has by by-law requested the Minister to make such order, and thecouncil has the power to pass that by-law. 1993, c. 26, s. 63; 2009, c. 33, Sched. 21,s. 10 (15).

Conditions

(5) A council may, as a condition to the passage of a by-law under subsection(4), impose such conditions in respect of any land described in the by-law as itconsiders appropriate. 1993, c. 26, s. 63.

Criteria for consideration

(6) In considering whether to issue a certificate under subsection (1), regardshall be had to the prescribed criteria. 1993, c. 26, s. 63.

Criteria for certificate

(7) No certificate shall be issued by a council under subsection (1) unless,

(a) the land described in the certificate conforms with the prescribed criteria;or

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(b) the Minister, by order, has exempted that land from the criteria. 1993,c. 26, s. 63.

Conditions

(8) A council or the Minister may, as a condition to issuing a certificate ofvalidation or order, impose such conditions in respect of any land described in thecertificate or order as it considers appropriate. 1993, c. 26, s. 63.

Proviso

(9) Nothing in this section derogates from the power a council or the Minister hasto grant consents referred to in section

So, where we find a Transfer or Charge on title which should have been the subject of aConsent under Section 50(3) or 50(5) we can make an application under Section 57 fora validation certificate. As noted in subsection (8) the municipality can imposeconditions in the same manner it could have done if there had been a severanceapplication in the first instance. That of course could include such things as roadwidening and financial contributions to development funds.

An alternative to the use of Section 57 where the Transfer to the current owner shouldhave been the subject of a consent is to apply for the consent following which a new,correcting, Transfer involving the same parties is prepared and registered. The consentcan be endorsed upon the new Transfer prior to registration.

Section 50(22) Statements

Every now and again we encounter a file where we are not sure if there is a PlanningAct issue or not. In some of those situations we can perhaps discuss the issue with afellow solicitor, put a memo in the file and consider if the use of the statements providedfor in Section 50(22) are of any assistance. That subsection provides as follows:

Exception re prescribed statements

(22) Where a deed or transfer,

(a) contains a statement by the grantor, verifying that to the best of thegrantor’s knowledge and belief the deed or transfer does not contravene this section;

(b) contains a statement by the grantor’s solicitor, verifying that,

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(i) he or she has explained the effect of this section to the grantor,

(ii) he or she has made inquiries of the grantor to determine that the deed ortransfer does not contravene this section,

(iii) based on the information supplied by the grantor, to the best of thesolicitor’s knowledge and belief, the deed or transfer does not contravene this section,and

(iv) he or she is an Ontario solicitor in good standing; and

(c) contains a statement by the grantee’s solicitor, verifying that,

(i) he or she has investigated the title to the land and, where relevant, toabutting land,

(ii) he or she is satisfied that the record of title to the land and, whererelevant, to abutting land, reveals no existing contravention of this section or apredecessor thereof or of a by-law passed under a predecessor of this section or of anorder made under clause 27 (1) (b), as it existed on the 25th day of June, 1970, of ThePlanning Act, being chapter 296 of the Revised Statutes of Ontario, 1960, or apredecessor thereof, that has the effect of preventing the conveyance of any interest inthe land,

(iii) to the best of his or her knowledge and belief, the deed or transfer doesnot contravene this section, and

(iv) he or she acts independently of the grantor’s solicitor and is an Ontariosolicitor in good standing; and

(d) is registered under the Land Titles Act or the Registry Act,

any contravention of this section or a predecessor thereof or of a by-law passed under apredecessor of this section or of an order made under clause 27 (1) (b), as it existed onthe 25th day of June, 1970, of The Planning Act, being chapter 296 of the RevisedStatutes of Ontario, 1960, or a predecessor thereof, does not and shall be deemednever to have had the effect of preventing the conveyance of any interest in the land,but this subsection does not affect the rights acquired by any person from a judgment ororder of any court given or made on or before the day the deed or transfer is registered.R.S.O. 1990, c. P.13, s. 50 (22).

Search period re Planning Act

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(23) For the purposes of the statement referred to in subclause (22) (c) (ii), asolicitor is not required to investigate the registered title to the land except with respectto the time since the registration of the most recent deed or transfer affecting the sameland and containing the statements referred to in clauses (22) (a), (b) and (c). R.S.O.1990, c. P.13, s. 50 (23).

Exempting orders

(24) The Minister may by order designate any part of Ontario as land to whichsubsection (22) shall not apply after the day a certified copy or duplicate of the order isregistered in the proper land registry office in a manner approved by the Director ofLand Registration appointed under the Registry Act. R.S.O. 1990, c. P.13, s. 50 (24).

Offence

(25) Every person who knowingly makes a false statement under subsection(22) is guilty of an offence and on conviction is liable to a fine not exceeding theaggregate of the value of,

(a) the land in respect of which the statement is made; and

(b) the relevant abutting land,

determined as of the day of registration of the deed or transfer containing the falsestatement. R.S.O. 1990, c. P.13, s. 50 (25).

The statements are of course provided for in Boxes 12 and 13 of the statutory form ofTransfer and can only be inserted where there are two independent solicitorsrepresenting the parties. And, the statements can only be used where there is agenuine belief that there are no Planning Act problems or violations. We have to bear inmind the sanction provided for in subsection 25 reproduced above that any personknowingly making a false statement can be liable to a fine not exceeding the value ofthe land involved and the relevant abutting land.

However, if the 50(22) statements are in fact included in a Transfer it has the effect of“white washing” title from a Planning Act perspective including the subject transaction.This was confirmed in Reeve Burns v. Pelkman (1989, 70 O.R. (2d) 113 (Ont. Dist. Ct.)In that case a purchaser’s solicitor noted that although the statements had beenincluded in the Transfer to the Vendor there was a clear breach of the Act in a priortransaction. Justice Gordon Killeen of what was then the District Court in London,Ontario said that the wording of the section is clear: “deemed is deemed”. In anotherdecision, Jacuniak v. Tamburro (2002),59. O.R. (3d) (Ont. S.C.J.) an adjoining ownerwas trying to overturn an improperly granted right of way. Citing Reeves Burns, the

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Court held that the statements pursuant to 50(22) having been included saved thegrant.

Prior Consent

Another possible answer to an apparent Planning Act violation where adjoiningproperties appear to have merged is that a prior consent was issued for one or bothproperties. Section 50(12) provides as follows:

Exception to application of subss. (3, 5)

(12) Where a parcel of land is conveyed by way of a deed or transfer with aconsent given under section 53, subsections (3) and (5) of this section do not apply to asubsequent conveyance of, or other transaction involving, the identical parcel of landunless the council or the Minister, as the case may be, in giving the consent, stipulateseither that subsection (3) or subsection (5) shall apply to any such subsequentconveyance or transaction. R.S.O. 1990, c. P.13, s. 50 (12).

It is of course necessary to review the prior consent to ensure two things; firstly that theland involved in the consent is identical to that in the current transaction and secondlythat the consent did not contain any restrictions as to its application to subsequenttransactions.

Exempting Bylaws

It can sometimes appear that a transaction dealing with part of a lot on a registered planof subdivision required or does require a consent pursuant to Section 50(3) or (5) andwas or is void for lack of same. However, title may reflect registration of an exemptingbylaw enacted pursuant to Section 50(7) which states follows:

(7) Despite subsection (5), the council of a local municipality may by by-lawprovide that subsection (5) does not apply to land that is within such registered plan orplans of subdivision or parts of them as are designated in the by-law. 1996, c. 4,s. 27 (3).

The rationale for such bylaws of course is to avoid unnecessary time and paperworkspent on situations where the municipality has authorized a development of say a dozensemi-detached homes on six lots which are all to be divided in half. Without the

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exempting bylaw it would have been necessary to endorse a consent to the severanceon each of the twelve Transfers prior to registration.

Pre June 15th 1967 transactions

It is perhaps worth mentioning, if only for historical reasons, that any transaction whichoccurred prior to June 15th 1967 and which violated Section 50 of the Planning Act wasforgiven by a special amendment to the Act. This was deemed necessary because ofthe confusion arising out of the “checker board” schemes such as reviewed in Forfarand the fact that thousands of titles would have been in jeopardy. It was consideredpolitically and practically a good idea to wipe the slate clean. However, the Provincialgovernment of the time made it quite clear that it would not be inclined to pass anysimilar legislation again. Today, we have the advantage of at least knowing that therecan really be no Planning Act concerns prior to June 15th 1967.

Vendor Take back Mortgages

One further situation which should perhaps be mentioned is where a vendor takes backa mortgage on closing as part of the consideration for the sale and where the purchaseralready owns adjoining lands. The problem is of course that once the Transfer to thePurchaser is registered the title will merge with the adjoining lands. The mortgage tothe vendor is then a charge against only part of the purchaser’s newly merged titles andwould, in the normal course, require consent pursuant to Section 50(3) or (5). However,that situation, which was the subject of litigation in Drewery et al v. Century City Dev.Ltd (1974), 52 D.L.R. (3d) 515 (Ont. H.C.), was resolved by the addition of Subsection(8) to Section 50. That addition provides as follows:

Exception

(8) Nothing in subsections (3) and (5) prohibits, and subsections (3) and (5) shallbe deemed never to have prohibited, the giving back of a mortgage or charge by apurchaser of land to the vendor of the land as part or all of the consideration for theconveyance of the land, provided that the mortgage or charge applies to all of the landdescribed in the conveyance. R.S.O. 1990, c. P.13, s. 50 (8).

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However, it is important to recognize the limitations of this subsection. First, themortgage/charge must be part of the sale transaction. A mortgage/charge at a later dateeven between the same parties but for different reasons (perhaps a separate loan orinvestment ) does not allow the use of subsection (8); a consent would be required.Second, the mortgage/charge must be to the vendor not directed by the vendor to beregistered in the name of a related person or entity. Note that if the purchaser obtaineda mortgage from a bank or other third party to finance the transaction this subsection isof no use and a consent will be required. And, lastly, the mortgage/charge must beapplied to the same parcel or land conveyed; not part of it or some other configurationinvolving adjoining lands of the purchaser.

Adjoining Lands held in Trust

One last situation which I wanted to address before leaving the Planning Act is whereadjoining lands are owned or controlled by the vendor or mortgagor in a sale ormortgage situation. The starting point for that discussion is of course the decision inRe: Forfar & Township of East Gwillimbury et al (1971), 20 D.L.R. (3d) 377 (Ont. C.A.)which stated that we should not only be concerned with the registered owner of the feein adjoining lands but also who controls or has power over the fee in adjoining lands .The Ontario Court of Appeal said:

“[the Planning Act] should not be interpreted to construe “fee” in its narrowtechnical sense. The Act is designed to prohibit transactions involving not onlythe fee but control or power over the fee.”

The decision was appealed to the Supreme Court of Canada which said:

“We are all in agreement …. that the words “retain the fee” embraces not only theholder of the fee but the holder of the power over the fee …and the term “grantor”must have a concordant meaning “

The reader will no doubt be familiar with these decisions which involved “checkerboarding” schemes which were designed to and did in fact avoid compliance with thePlanning Act. However, Forfar also created what appeared to be another problem.Where a bone fide purchaser acquired title to a property without knowledge that thevendor owned or controlled adjoining property which was registered in the name ofanother in trust for that vendor it would seem that control of the fee existed and consentrequired. The problem is of course that a search of adjoining lands would showregistered owners and not reveal situations where the same party controlled the fee.Investigating whether adjoining owners really owned lands or held them in trust for

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another would be a daunting if not impossible task. Adjoining owners would be under noobligation to discuss such arrangements and vendors would be reluctant to offer suchinformation. In any event, the issue was addressed in Reference re Certain Titles toLand in Ontario (1975), 35 D.L.R. (3d) 10 (Ont. C. A.). Unlike the situation in Forfar andother similar schemes the Court held that while the vendor might be the beneficialowner of adjoining lands the registered owner still had the ability to transfer title andtherefore “control” was not the same as that referred to in the Forfar decision. The Courtwent on to say that a bone fide purchaser without notice of the trust would receive goodtitle. The caution here is that if the purchaser does have actual notice of the trust then aconsent would be required for the transaction assuming of course that anotherexception did not apply. A Transfer registered on adjoining lands stating that theproperty is held in trust is not a problem as there is no requirement to look behind thetitle and look at the trust. However, a notation on title naming the beneficial owner asthe same party who owns the lands in a subject transaction is fatal and will requireconsent. Likewise, there could be actual notice such as the vendor or realtormentioning that adjoining properties, such as farmland, are also owned by the vendor.

I keep in my library a copy of the 1984-85 Ontario Bar Admission Course materialswhich contains a sixty page appendix full of Planning Act decisions and related statutorychanges made over the years. I don’t believe the appendix was duplicated in anysubsequent editions. Clearly, I have by necessity been very selective in what isdiscussed here in the context of the Planning Act but hopefully it will serve to be ofsome assistance to the reader.

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Access

The next topic which I wanted to review is that of access to real estate. Not allproperties are of course served by provincial or municipally dedicated highways orroads. The 2005 Ontario Bar Admission Course materials had a summary dealing withelectronic title searching and a couple of paragraphs dealt with access. It stated at theoutset that “access must be verified and cannot be assumed” but I suspect thatmany times access is assumed!

We can at least take some comfort from Section 57 of the Surveys Act R,S.O. 1990 c.S.30 which is as follows:

Public roads, etc.

57. Subject to the Land Titles Act or the Registry Act as to the amendment oralteration of plans, every road allowance, highway, street, lane, walk andcommon shown on a plan of subdivision shall be deemed to be a public road,highway, street, lane, walk and common, respectively. R.S.O. 1990, c. S.30,s. 57.

The Land Titles Act R.S.O. 1990 c. L.5 does contain a reference to roads in Section151 (1) which states:

151. (1) Where a plan of subdivision lays out a part of the land as a street, road,lane or common, it shall not be registered except on the application of the ownerof the land subdivided with the consent in writing of all persons who areregistered as mortgagees or chargees thereof. R.S.O. 1990, c. L.5, s. 151 (1).

What is important to note is that the Surveys Act does not provide that one foot reservesshown on plans of subdivision are also automatically deemed to be public roadways. Infact, the reader will already be aware that these reserves, usually one foot in width arerequired to be inserted into subdivision plans as a control mechanism by municipalities.The reserves are typically transferred to the municipality at the time the subdivision isregistered in accordance with the subdivision or development agreement. When the

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subdivision has been completed, the roads maintained and all conditions met themunicipality will then pass a bylaw declaring the reserves as public highway. In themeantime there is technically no access to the interior roads of the subdivision whichbecomes partly or totally landlocked from the existing road system.

Of course, most properties in urban areas are usually situated on subdivisions andserviced by public highways and municipally adopted roads. It is when we are dealingwith rural properties, cottages, farms and so on that we have to be more diligent inensuring adequate access and assessing potential issues. The CCH Real EstateGuide has a very useful list of the types of access which may serve properties in thesesituations. I set them out here with a couple of comments of my own:

1. Open publically maintained year round roads

2. Open publically maintained seasonal roads. Finding such a road exists to servea property should also be a red flag to check the zoning for the use of theproperty. It may be the case that seasonal use only is permitted by the zoningbylaw and not year round use.

3. Ministry of Natural Resources road over Crown land. In this situation a letter ofconsent from the Ministry should be obtained permitting use.

4. Unopened road allowance (such as an original shore road allowance).

5. Trespass Road.

6. Colonization and other such roads

7. Private deeded road. Issues of responsibility of maintenance and repair can stillbe an issue

8. Undeeded right of way such as acquired by prescription. This issue was furtherreviewed in my 2011 paper presented for Stewart Title.

9. Water access. The problem here is that not only is access for vehicular trafficprobably required but consideration must be given to ownership of the shorelineon both access points. The Ministry of Natural Resources may have a part toplan in establishing the parameters of access.

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Determining the quality and extent of access of course starts with enquiries of thevendor or owner. Statutory Declarations can be sought detailing not only the quality andextent but longevity of the access. In addition recourse can be had to reference plansregistered or otherwise, municipal and county plans, block maps and even street maps.Parcel registers may exist for the roadways, reserves and road widening surveys all ofwhich can help establish the access information. A specific survey for a property shouldalso be obtained showing not only the boundaries of the property but also the access. Ifthere is no access identified then the property is landlocked and appropriate requisitionsneed to be made.

Road Access Act

Set out in the Appendix to this paper is the Road Access Act R.S.O 1990 R.34. Thislittle statute may appear to be a stepping stone to acquiring access but is far from it. Isuggest that this statute is of sufficient significance to warrant further discussion.

In 2008795 Ontario Inc v. Kilpatrick, 2007 ONCA 586 Justice Laskin of the OntarioCourt of Appeal started with an overview of the facts and said:

“this is another in a spate of recent cases in this Court under Ontario’s RoadAccess Act”

He continued by pointing out that the Act was passed to resolve disputes betweenneighbours when a property is landlocked and the only motor vehicle access to it is overa road on property owned by another neighbour. The Act states that the owner of theroad cannot close it without a court order. Justice Laskin also pointed out that implicitythe Act allows the owner to close the road without a court order if there is “alternativeroad access” to the landlocked property. The appeal turned on what constitutes“alternate road access”.

The case dealt with the owners of, surprize, a group of cottagers in the Lake St. Johnarea who sued for an injunction to prevent their use of a road to and from the cottagesbeing blocked. The dispute had only arisen after many years of use of the road accessbecause the owner of the road began demanding payment for maintenance. The trialjudge had found the annual fee of $2,000.00 to be arbitrary and excessive and grantedthe injunction requested by the cottagers. The owner of the road argued on the appealthat they had a right to close the road without court order because there was “alternativeroad access”. It argued that an unopened road allowance existed or in the alternativethe existing access is still available if the owners pay the fee. The appeal court found

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that neither constitutes such alternative access; it would have to another existing roadwhich would permit motor vehicle access at the time of anticipated closure.

What is very important to note is that the Act does not create or acknowledge the useras having a right to use the road. The Court noted:

“… persons using an access road … cannot claim a legal right to do so…. Alegal right must be a legal right that exists apart from the Act ..”

Indeed Section 6(1) of the Act states:

“Nothing in this Act shall be construed to confer any right in respect of theownership of land where the right does not otherwise exist at law andnothing in this Act shall affect any alternative remedy at law available toany applicant or other person.”

The Court went on further and said:

“Thus, the Act confers on users of an access road only a very limited andtemporary right to use the road to go to and from their properties”

The limited statutory right given to owners, said the Court, creates no proprietary right orinterest over the access road and only gives interim status to prevent an action fortrespass. Further, the user cannot convey any right to the road on a sale of the parcel ofland. So, in the end result the Court said that so long as there is alternative roadaccess the owner of the road is entitled to the Order closing it. In this particular casethe Court of Appeal found that there was no actual existing alternative access; anunopened road allowance does not qualify nor does requiring a user fee to be paid touse the existing road.

Finally, however, the Court suggested that the cottage owners might very well beadvised to reach an agreement with the owner because there is no real defence to anapplication to close an access road where a real alternative exists. The appeal wasdismissed.

I won’t belabour the discussion but I have to say Justice Laskin was right; there hasbeen a lot of litigation surrounding the Road Access Act. In 992275 Ontario Inc et al v.Krawczyk 2006 CanLII 13955 (ON CA) the Court noted that finding that a road is anaccess road establishes only a relatively limited privilege (paragraph 9) and that afinding that a road is an access road does not give the users a legal right to use it withinthe meaning of the Act; it simply means the users cannot be treated as trespassers.The reader can be referred to two other Court of Appeal decisions, first, Blais v.Belanger 2007 ONCA 310 (CanLII) which stated:

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“The Act neither expands nor reduces the scope of the acquisition of rights ofway or easements under the common law”

“the Act does not place any obligation on a landowner to maintain an accessroad across his or her property”

and finally:

“it is worth noting that the Act provides no assurance to those who use anddepend on an access road that it will continue to be available to them in thefuture”

And the other decision is Ebare v. Winter 2005 CanLII 247 (ON CA) where the user ofthe road sought either a declaration of a prescriptive easement or in the alternative thatthe road was an “access road” within the meaning of the Act and could not be closedgiven no alternative access to their parcel. However, the trial Judge found that aprescriptive easement had not been proven based on the doctrine of lost modern grantand further there was no evidence that there was no alternative access. Accordingly,the claim was dismissed. The Appeal was also dismissed. The user had argued attrial and on appeal that any alternative access had to be “legal access” but was rejectedin both forums. The Court found that alternative routes over private property could stillbe considered “access roads” within the Act by showing permission to use same or thatsuch roads themselves constitute “access roads”. Clearly then, given thesedecisions, use of the Road Access Act provides little comfort to a land owner who usesan access road.

Overburdening use

One last matter to consider in the access to property is the possible overuse oroverburdening in the exercise of a legitimate right of way. Consideration has to be givenas to the current use of the right of way being consistent with the original intention,sometimes expressed in the document itself. This topic was the focus of the decisionin Mackenzie v. Matthews et al 1999 CanLII 3801 (ON CA). That case dealt with a rightof way granted to cottage owners who owned islands on Pigeon Lake. The right of waywas situate on the shore of the mainland and various documents established that theright of way was for the use of the “registered owners of the islands” , that no grantwould be given to “the public at large” and finally that it would only be available for the

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“owners, guests and tradesmen” of the islands. However, disputes arose as to the useof the right of way to reach an adjoining parcel which had a vehicle turnaround and wasthe subject of a separate right of way. The problem was that this turnaround was nextdoor to a lodge on the mainland and patrons were using the right of way to reach it;clearly not related to the islands. In any event the Court said a couple of things ofinterest. First, the Appeal Court found that the trial judge was correct in deciding thatthe right of way included ancillary rights which are reasonably necessary to the use andenjoyment of the easement. This included extending the right of way to invitees andguests, the right to install a dock, to park cars and boat trailers, to use the vehicleturnaround. Further, if the owners of the right of way want to restrict access to patronsof the lodge, which they are entitled to do it can only be done with an unlocked gatewhich allows the island folks to continue with their access. So, while the trial judgmentwas essentially upheld and the island owners content. We do need to pay attention totwo things the Court said:

…the rule that an easement cannot be used to gain access to a property otherthan that for which the easement was created does not apply in thecircumstances of this case. That rule precludes the user of a right of way fromenlarging the burden of the easement on the servient tenement by using it for apurpose different from that which it was created.”

Citing an English Court of Appeal decision, Harris v. Flower (1904), 74 L.J. Ch. 127 theCourt noted that the use of a right of way to access a factory on adjoining lands whichhad not previously been there created “ a significant and unacceptable enlargement ofthe burden of the right of way”.

The lesson in all of this is of course that we need to establish the quality, extent and useof access to real property.

Title Insurance option

Not only do we have to discuss access issues with a purchaser or mortgagee but weneed to make sure we have communicated all relevant information to the title insurer.The insurer may wish to insert exclusions or offer coverage for certain aspects ofaccess.

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Power of Sale: Priorities

A mortgagee has a right to sell real property securing the mortgage debt upon defaultpursuant to either the express provision in the Mortgage/Charge or, implied underSection 7 (1) 1 v) of the Land Registration Reform Act R.S.O. 1990, Chapter L.4 or inexceptional cases, Section 24 of the Mortgages Act R.S.O. 1990, c M.40. Typically themortgagee is proceeding pursuant to the express provision in the Mortgage and the realestate lawyer will obviously be concerned that the process of selling the propertycomplies with the Mortgages Act and that the requirements for electronic registrationare met. However, of equal importance is that consideration must be given to priorityenjoyed by the mortgage relative to other claims or interests registered before or afterregistration of the mortgage or after issuance of a Notice of Sale. I will review some ofthese interests in this portion of the paper.

Executions

One subsection of Section 10 of the Execution Act R.S.O. 1990, c. E.24 dealing withWrits of Execution provides as follows:

“Real property

(4) A sheriff to whom a writ of execution, a renewal of a writ of execution or acertificate of lien under the Bail Act is directed shall, upon receiving from or on behalf ofthe judgment creditor the required fee in accordance with the Administration of JusticeAct and instructions to do so, shall promptly take the following actions:

1. Enter the writ, renewal or certificate of lien, as the case may be, in theelectronic database maintained by the sheriff as the index of writs of execution.

2. Indicate in the electronic database that the writ, renewal or certificate oflien, as the case may be, affects real property governed by the Land Titles Act. 2010, c.16, Sched. 2, s. 3 (16).”

and provides the following as to the effective date of the Writ:

Effective date of writ, etc.

(6) Subject to section 11 and the Land Titles Act, a writ of execution, a renewalof it or a certificate of lien under the Bail Act binds the lands against which it is issuedfrom the effective date of the writ, renewal or certificate noted in the electronic database

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maintained by the sheriff as the index of writs of execution. 2010, c. 16, Sched. 2,s. 3 (16).

Same

(7) The date of receiving a writ, a renewal of it or a certificate of lien referred toin clause 136 (1) (d) of the Land Titles Act is deemed to be the effective date referred toin subsection (6). 2010, c. 16, Sched. 2, s. 3 (16).

As most readers will know then a Writ of Execution binds the lands of the debtor fromthe date it is filed with the Sheriff and entered into the electronic database. It followsthat if a Writ of Execution has been registered prior to registration of a Mortgage/Chargeit will enjoy priority over the mortgage and must be paid out from the proceeds of sale inpriority to the mortgage. A Purchaser from the mortgagee will have to ensure that suchexecutions are in fact and deleted otherwise the property will be transferred subject tosuch writs. It may also occur that mortgage funds were advanced in stages and anexecution filed with the Sheriff between advances will enjoy priority over the subsequentadvances.

Subject to my comments regarding CRA “super liens” ( at page 30) a mortgage willenjoy priority over Writs of Execution filed subsequent to registration of the mortgageprovided that the execution creditor has been served with the Notice of Sale. The Writof Execution filed by a creditor who has not been properly served is not cut out by thesale and would either have to be paid out or a new Notice issued.

One last situation to look at is the similar name execution. Unless a mortgagee hadevidence that a debtor was not one and the same as a debtor shown on a Writ ofExecution appropriate notice would have to be given to the creditor. The writer recentlyexperienced such a situation and the mortgagee’s solicitor was reluctant to provide anyinformation regarding such an execution until I pointed out that I would have to assumethe debtor and mortgagor were one and the same and as notice had not been given tothe creditor the Notice was in fact defective. Evidence was quickly provided whichsatisfied me that the two were not one and the same. Had I not been able to establishsame and the closing took place the writ may still have been effective and be binding onthe land.

Condominium Act Liens

Section 85 of the Condominium Act S.O. 1998 c. 19 sets out the process giving rise to alien for arrears of common expenses and all reasonable legal costs related thereto. It

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provides for registration of such a lien within three months of the lien arising failingwhich the lien expires. What is important for this discussion is that the lien enjoyspriority over every registered encumbrance even though the encumbrance wasregistered before the lien arose. The subsection provides as follows:

Priority of lien

86. (1) Subject to subsection (2), a lien mentioned in subsection 85 (1)has priority over every registered and unregistered encumbrance even thoughthe encumbrance existed before the lien arose but does not have priority over,

(a) a claim of the Crown other than by way of a mortgage;

(b) a claim for taxes, charges, rates or assessments levied or recoverableunder the Municipal Act, 2001, the City of Toronto Act, 2006, the Education Act,the Local Roads Boards Act or the Statute Labour Act; or

(c) a lien or claim that is prescribed. 1998, c. 19, s. 86 (1); 2002, c. 17,Sched. F, Table; 2006, c. 32, Sched. C, s. 7.

Exception, non-residential lien

(2) A lien in respect of a unit for non-residential purposes does not have priorityunder this section in respect of the amount by which the owner of the unit hasdefaulted in the obligation to contribute to the common expenses before thecoming into force of this section. 1998, c. 19, s. 86 (2).

Note that the lien does not enjoy priority of claims of the Crown, tax liens and“prescribed liens”. Further, the lien does not enjoy priority over non-residential units. Inany event a purchaser’s lawyer will obtain and review a Status Certificate prior toclosing which should set out the amount owing on a registered lien as at the date of theCertificate. Even if a lien has not been registered the property may still be subject to anunregistered lien for arrears accumulated during the previous three month period. Thisis because the lien only expires if registration does not occur within three months of thelien arising. The wording of Section 86 (1) does not require that the lien be registeredin order to enjoy priority; the Section simply refers to “a lien”. Accordingly, a mortgageeselling under power of sale will be required to discharge a common expense lienwhether or not registered at the time of closing.

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Utilities

The former Section 31 (1) of the Public Utilities Act R.S.O. 1990, c .P.52 provided thatamounts payable by an owner or occupant of land for the supply of “public” utilities werea lien upon the land and could be collected by the sale of the person’s interest in theland and further, constituted a lien and charge upon such lands in the same manner andto the same extent as municipal taxes. That of course gave the lien priority over otherclaims or interests due to the effect of what is now Section 349 (3) of the Municipal Actwhich provides as follows:

Special lien

(3) Taxes are a special lien on the land in priority to every claim, privilege, lien orencumbrance of every person except the Crown, and the lien and its priority arenot lost or impaired by any neglect, omission or error of the municipality or itsagents or through taking no action to register a tax arrears certificate. 2001,c. 25, s. 349 (3).

While outstanding realty taxes were usually paid by mortgagees exercising a power ofsale the state of the account for utilities was not always considered. This could result ina municipality adding outstanding utilities to realty taxes and claiming same from apurchaser from the mortgagee. Indeed, this is what occurred in a motion made by anunsuspecting purchaser in Mauro v. The Corporation of the City of Thunder Bay, 2005CanLII 19849 (ONSC). Following closing of a purchase from a bank pursuant to itspower of sale the purchaser was faced with a demand from the City of Thunder Bay topay an outstanding water bill incurred by the previous owner. The purchaser resistedpayment, filed the motion and argued that unless the utility account had been added tothe tax roll the mortgagee sells the property free and clear of same. The Court notedthat the lien comes into existence upon the utilities being provided, the application to thepurchaser was clear, the legislation maybe draconian and dismissed the motion!

All this may seem academic because Section 31, along with a number of other sections,of the Public Utilities Act was repealed in 2001 and so the link between that Act and theMunicipal Act was broken. Perhaps it had been considered to be draconian legislation.In any event, utility accounts are not treated in the same way as realty taxes any longer

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but I suggest the problem has not gone away. The following section which does remainin the Public Utility Act is still of , at a minimum, practical importance:

Remedy for price of public utility furnished

59. If any person supplied with any public utility neglects to pay rent, rateor charge due to the company at any of the times fixed for the payment thereof,the company, or any person acting under its authority, on giving forty-eight hoursprevious notice, may stop the supply from entering the premises of the person bycutting off the service pipes or by such other means as the company or itsofficers consider proper, and the company may recover the rent or charge due upto that time, together with the expenses of cutting off the supply, despite anycontract to furnish it for a longer time. R.S.O. 1990, c. P.52, s. 59.

It is true that the outstanding account is no longer a lien on the premises or that apurchaser should have any responsibility for same. However, coupled with Section 50(4) it may continue to be a problem. It states:

Power to require security from consumer

(4) Any corporation before supplying any public utility to any person or to anybuilding or premises, or as a condition of continuing to supply the utility, mayrequire any consumer to give reasonable security for the payment of the propercharges therefor or for carrying the public utility into the building or premises.R.S.O. 1990, c. P.52, s. 50.

While “reasonable security” will clearly apply only to future obligations of the purchaserto pay utilities it will be understandable that a purchaser would also be put under somepressure to ensure previous bills are paid. From a practical point of view then apurchaser should, in my view check the status of the utility account and ensure thatoutstanding amounts are paid on closing or an undertaking to do so is obtained.

Realty Taxes

As noted above, Section 349 (3) of the Municipal Act provides that realty taxes are aspecial lien and ranks in priority to all other interests except those of the Crown. In thesituation where a client is purchasing from an owner we rely upon a Statement ofAdjustments, the vendor’s knowledge as to any outstanding realty taxes (usually

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supported by a copy of tax bill or expressed in the Declaration of Possession) and avendor’s undertaking to readjust after closing if necessary. A mortgagee selling underpower of sale is not always in a position to have accurate knowledge and certainlyreluctant to provide an undertaking to readjust. So, the purchaser, and his or her lawyer,will have the responsibility to check the status of realty taxes. That should, in my view,be accomplished by obtaining a formal Tax Certificate pursuant to Section 352(1) of theMunicipal Act because there will likely be no other representation as to tax payments orarrears. Mortgagees should either direct on closing for a cheque to be issued to themunicipality in payment of outstanding taxes and penalties or provide an undertakingfrom its solicitor to do so immediately following closing.

Corporations

Older practitioners such as myself will recall the days when unpaid corporate taxeswere an automatic lien on all property of a corporation including real estate.Accordingly, it was necessary to submit written requests to the Province of Ontario forconfirmation that a corporate vendor or mortgagor was not in arrears of corporate taxes.Fortunately, today the lien does not affect real property unless notice claiming a lien isregistered in the appropriate land registry office. The relevant section of theCorporations Tax Act is 99(1) which provides as follows:

Lien on real property

99. (1) Any amount payable or required to be remitted under this Act byany person is, upon registration by the Minister in the proper land registry officeof a notice claiming a lien and charge conferred by this section, a lien and chargeon any interest the corporation liable to pay or remit the amount has in the realproperty described in the notice. 1994, c. 14, s. 44 (1); 2004, c. 16, s. 2 (2).

Subsection (3) of Section 99 provides that following registration the lien enjoys priorityover any subsequent encumbrance registered thereafter. So, if a mortgagee is selling aproperty based upon a mortgage registered after registration of a Notice pursuant toSection 99 then it must be discharged from the proceeds of sale in priority to themortgage.

It should also be noted that where power of sale proceedings are commenced against acorporation after its dissolution notice must be given to the Public Guardian and Trustee

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pursuant to Section 242 (4) of the Business Corporations Act R.S.O. 1990, c. c B.16.Accordingly, a purchaser from a mortgagee selling under power of sale might beadvised to obtain a Corporate Status Certificate or similar search to confirm that thecorporate mortgagor was in fact active at the time the notice of sale was issued. This isparticularly a good idea given the provisions of the following section:

Forfeiture of undisposed property

244. (1) Any property of a corporation that has not been disposed of atthe date of its dissolution is immediately upon such dissolution forfeit to and vestsin the Crown. R.S.O. 1990, c. B.16, s. 244 (1); 1994, c. 27, s. 71 (31).

Exception

(2) Despite subsection (1), if a judgment is given or an order or decision is madeor land is sold in an action, suit or proceeding commenced in accordance withsection 242 and the judgment, order, decision or sale affects property belongingto the corporation before the dissolution, unless the plaintiff, applicant ormortgagee has not complied with subsection 242 (3) or (4),

(a) the property shall be available to satisfy the judgment, order or otherdecision; and

(b) title to the land shall be transferred to a purchaser free of the Crown’sinterest, in the case of a power of sale proceeding. 1998, c. 18, Sched. E,s. 28 (1).

Note that the land would only be transferred free of the Crown’s interest if subsection (3)or (4) of Section 242, noted above has been complied with. Subsection (3) deals withwhen notice is to be given where an action is commenced. So, corporate tax arrearscan still be an issue to consider in power of sale transactions.

Vendor Liens

Real estate practitioners will know that where a vendor does not receive full payment onclosing an equitable lien arises by operation of law automatically. Given that the lienarises on closing it would seem to take priority over subsequent encumbrancesincluding an unsuspecting mortgagee who believes it has a first charge against the

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property. Authority for this “vendor lien” can be found in Freeborn v. Goodman [1969]S.C.R. 923. However, priority issues were reviewed in Hosseini v. Salerno 2010 ONSC503 (CanLII) where the purchaser assumed a first mortgage and gave a secondmortgage on closing to a third party, Salerno. The vendor had not been paid in full onclosing and a few days after closing registered vendor’s liens against the property.Following a subsequent sale under power of sale by the first mortgagee the vendor,Hosseini and the second mortgagee, Salerno squared off in an action as to who hadpriority to the surplus funds and a Motion for Summary Judgment was brought by thesecond mortgagee. The Court pointed out:

“When a mortgage is placed on title at closing in order to obtain the purchasemoney, the Vendor’s Lien must give way to the mortgage. The intention of theparties as to priority is thereby engraved on the transaction and that intentionmust be respected”.

The Court cited Silaschi et al v. 1054473 Ontario Ltd et al., [2000] O.J. No. 1399 (Ont.C.A.) as authority for that proposition. The Court went on to mention that in any eventthe mortgage had been registered before the vendor’s liens were registered and so themortgagee did not have notice of same. Of significance though is that the vendor’s lienhad not been mentioned in the Transfer to the purchaser. Had that been the case wewould no doubt have seen a different result. While vendor liens may be few and farbetween it is certainly a good idea, in my view, to review a copy of the Transfer to thedefaulting borrower just to ensure that a vendor’s lien does not intervene between theTransfer and mortgage under which a power of sale is being conducted. If such a lienexists it may very well have priority and must be discharged by the selling mortgageefrom the proceeds of sale.

Mortgages/Transfers and Merger

Another situation which occasionally turn up is where a mortgagor is relieved fromfurther obligations under a mortgage by giving a Transfer or Quit Claim Deed ( as itused to be called) to the mortgagee. The effect, usually, is that the title and mortgagemerge and there is no longer a mortgage to enforce. Any attempt to enforce themortgage by power of sale or other action would then be void. Clearly then a review ofthe title to a property on behalf of a prospective purchaser should include a note as toany such transfer of title. It is not always the case that merger will occur as can be seen

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from the decision in Kramer v. Woodrow 1997 CanLII 12200 (ONSC). The facts aresomewhat involved but essentially a second mortgagee accepted a quit claim deed fromthe borrower and following the commencement of power of sale proceedings anotherencumbrancer challenged the validity of same. The Court held that where there is an“intervening estate” (i.e. the other mortgage) merger does not occur. In any event theCourt declared that the second mortgagee was entitled to proceed with the sale.

Fixtures

While vendor liens and mortgage merger issues rarely arise disputes over fixtures areconsistently causing headaches for purchasers and their lawyers. Ownership of thefurnace, air conditioner or any other fixture for that matter cannot be assumed and weneed to take a look at the Personal property Security Act R.S.O. 1990 c. P.10.

We should start with Section 34 which provides as follows:

. “ Fixtures

34. (1) A security interest in goods that attached,

(a) before the goods became a fixture, has priority as to thefixture over the claim of any person who has an interest in the real property; or

(b) after the goods became a fixture, has priority as to the fixtureover the claim of any person who subsequently acquired an interest in the realproperty, but not over any person who had a registered interest in the realproperty at the time the security interest in the goods attached and who has notconsented in writing to the security interest or disclaimed an interest in thefixture.

Exceptions

(2) A security interest mentioned in subsection (1) is subordinate tothe interest of,

(a) a subsequent purchaser for value of an interest in the realproperty; or

(b) a creditor with a prior encumbrance of record on the realproperty to the extent that the creditor makes subsequent advances,

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if the subsequent purchase or subsequent advance under a priorencumbrance of record is made or contracted for without knowledge of thesecurity interest and before notice of it is registered in accordance with section54.

Removal of collateral

(3) If a secured party has an interest in a fixture that has priorityover the claim of a person having an interest in the real property, the securedparty may, on default and subject to the provisions of this Act respecting default,remove the fixture from the real property if, unless otherwise agreed, the securedparty reimburses any encumbrancer or owner of the real property who is not thedebtor for the cost of repairing any physical injury but excluding diminution in thevalue of the real property caused by the absence of the fixture or by thenecessity for replacement. “

So, to put that simply, the section tells us that a security interest takes priority overinterests in real property which exist before the goods become fixtures and further,priority over interests arising after the goods became fixtures except where the securityinterest has been acknowledged in writing or a disclaimer as to an interest in thefixtures. It then proceeds to inform us that the security interest would not enjoy priorityover a purchaser for value without knowledge of the security interest and before noticewas registered in accordance with Section 54. We should then look at that sectionwhich provides as follows:

Notice in land registry office

54. (1) A notice of security interest, in the required form, may beregistered in the proper land registry office, where,

(a) the collateral is or includes fixtures or goods that may becomefixtures or crops, or minerals or hydrocarbons to be extracted, or timber to be cut;or

(b) the security interest is a security interest in a right to payment undera lease, mortgage or charge of real property to which this Act applies. R.S.O.1990, c. P.10, s. 54 (1); 1998, c. 18, Sched. E, s. 198 (1).

Consumer goods, registration period

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(2) Where the collateral is consumer goods, a notice registered underclause (1) (a) or an extension notice registered under subsection (3), as the casemay be, shall set out an expiration date, which date shall not be later than thefifth anniversary of the date of registration and the notice or extension notice iseffective until the end of the expiration date.

Idem

(3) A registration to which subsection (2) applies may be extended beforethe end of the registration period by the registration of an extension notice.R.S.O. 1990, c. P.10, s. 54 (2, 3).

Discharge

(4) A notice registered under subsection (1) may be discharged orpartially discharged by a certificate in the required form and the certificate maybe registered in the proper land registry office. R.S.O. 1990, c. P.10, s. 54 (4);1998, c. 18, Sched. E, s. 198 (2).

Clearly then if we find such a registration on title a purchaser under power of sale willhave notice of the security interest and will not enjoy the exemption provided for inSection 34(2)(a). Such interests will have to be discharged by the mortgagee from theproceeds of sale.

The other problem is that it may be that the security interest attached prior to themortgage being enforced in which case it will enjoy priority over the mortgage in anyevent. A good discussion of the priority of security interests in fixtures is set out in apaper dated April 18th 2012 presented by Joe Conte of Pallett Valo LLP entitled “PPSAIssues and Real Estate – Priorities and Enforcement at the 9th Annual Real Estate LawSummit provided by the Law Society of Upper Canada. As Mr. Conte points out in hispaper, conducting a PPSA search may very well be providing your client with notice of asecurity interest thereby losing the benefit of section 34(2)(a). However, if the securityinterest enjoys priority over the mortgage which is being enforced it should bedischarged. It is also the case that in some instances conditional sales contracts willcontain wording to the effect that until payment is made in full the furnace, airconditioner or other item does not become a fixture. Removal of fixtures pursuant toSection 34(3) is also a risk where the security interest enjoys priority and, I suggest,where it is deemed not to be a fixture at all. The issue of priorities between fixtures and

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real property in a power of sale transaction was raised in G.M.S. Securities v. Rich-Wood Kitchens 1995 CanLII 528 (ON CA) which is mentioned in the above noted paper.Rich-Wood was only claiming $5,000.00 out of proceeds of sale of $140,000.00 butnotwithstanding the modest amounts involved this ended up in the Ontario Court ofAppeal. A matter of principle no doubt! In any event the facts, briefly, were thatNational Trust enjoyed priority over the security interest (for kitchen cabinets suppliedby Rich-Wood) because it had advanced funds prior to same arising. G.M.S. thenadvanced funds under a second mortgage without notice of Rich-Wood’s interest.National Trust then advanced further funds under its first mortgage. The Court ofAppeal noted a “circular priority problem” because of the conflict between provisions ofthe Personal Property Security Act, the Mortgages Act or the Registry Act. With all duerespect to the Court, it seems that with a slight of hand, it was able to determinepriorities without offending the concept that National Trust should enjoy priority for itsadvances over the G.M.S. mortgage and concluded that when National Trust sold thereal property pursuant to its power of sale it had “converted” Rich-Wood’s right toremove the fixtures pursuant to Section 36(4) and should be responsible for payment ofRich-Wood’s claim.

Another decision of interest is Credit Union Central of Ontario Limited v. FibratechManufacturing Inc 2008 CanLII 70243 (ON SC). This dealt with competing claims topriority between a first mortgagee who was owed approximately $1.73 million and amunicipality with a tax arrears account of about $2 million. The Receiver appointedunder the Bankruptcy & Insolvency Act R.S.C. 1985 was liquidating real propertyincluding machinery and equipment. It was the priority over the machinery andequipment which was in dispute. After some analysis the Court held that the MunicipalAct did not, as argued by the municipality, create a “special lien” over the machineryand equipment and therefore the Credit Union enjoyed priority. The Court said at onepoint:

“What is or is not to be regarded as a fixture is a problematic issue that hasconfounded the law for decades”

How true! Purchasers and their lawyers need to be on guard to address the issue ofwhat fixtures are included and form part of the real property and if there are priorityissues to consider when purchasing under power of sale.

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Canada revenue Agency – Super Liens!

Perhaps one of the most disconcerting issues which must be addressed when dealingwith power of sale transactions is the so-called “super lien” enjoyed by CanadaRevenue Agency. This is particularly true when dealing with commercial or retailproperty. Although it was only a Motion for Summary Judgment the decision in MCAPCorporation v. Hunter 2005 CanLII 47759 (ON SC) is most helpful in reviewing thistopic. The facts were that the borrower had failed to remit GST and employeedeductions relating to his business and were monies outstanding at the time heobtained a mortgage advance. CRA subsequently filed Writs of Execution. Followingdefault under the mortgage MCAP started power of sale proceedings and CRA wasserved with a Notice of Sale. It would seem at first glance that the CRA executionswould rank subsequent to the mortgage but it claimed priority because of section 227(4)of the Income Tax Act, section 222(1) Excise Tax Act, section 23(3) Canada PensionPlan Act and section 86(2) Employment Insurance Act all of which provide a “superpriority” over other interests. I won’t set out all those sections for the reader but ofparticular note is section 2201 (referred to in the decision as section 2001) of theIncome Tax Regulations which provides as follows:

2201. (1) For the purpose of subsection 227(4.2) of the Act, “prescribed securityinterest”, in relation to an amount deemed by subsection 227(4) of the Act to beheld in trust by a person, means that part of a mortgage securing theperformance of an obligation of the person, that encumbers land or a building,where the mortgage is registered pursuant to the appropriate land registrationsystem before the time the amount is deemed to be held in trust by the person.

So, while the mortgagee’s lawyer had conducted the usual searches and found theexecutions it was wrongly assumed that the mortgage took priority. The Court found thatnotwithstanding that the executions were filed after the date of registration of themortgage CRA’s claim actually enjoyed priority. That is because amounts owing aredeemed to be trust monies and CRA can assert its claim against all assets of thedebtor. The problem then is that lawyers for mortgagees selling and lawyers forpurchasers buying under a power of sale should obtain written confirmation from CRAthat it does not assert priority. We cannot assume that the executions will be cut outunder the power of sale simply because they were filed after the date of the mortgage.We need to know that the mortgage was registered and funds advanced before default.

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Leases – Commercial

Where a purchaser is acquiring commercial or retail property pursuant to a power ofsale it should be remembered that the priority of commercial leases depends uponwhich was created first the lease or the mortgage. If the lease is created before themortgage it enjoys priority but if the mortgage is created before the lease then the leaseis subject to the priority of the mortgage. However, in some cases the mortgagee willpostpone its rights in favour of the commercial tenant. Clearly, a tenant who spendsthousands of dollars on improvements will not be willing to enter into a lease whichcould be terminated by a mortgagee following default by the landlord/borrower. So, inorder to establish whether a property is being purchased subject to or free ofcommercial leases a purchaser will need to review the appropriate documentation andobtain written acknowledgments from the tenant and mortgagee to clarify the status andstate of account under the lease. For a discussion of this issue the reader may wish torefer to 1420111 Ontario Limited v. Paramount Pictures (Canada) Inc 2001 CanLII28017 (ON SC)

Leases – Residential

A person who obtains title to a residential complex pursuant to power of sale ( orforeclosure) is deemed to be a landlord under the tenancy agreement by virtue ofSection 47 (1) of the Mortgages Act R.S.O. 1990 c. M.40. Subsection (3) furtherprovides that the deemed landlord is subject to both the tenancy agreement and theResidential Tenancies Act, 2006 S.O.2006,chapter 17.

Section 37 of that Act provides that residential tenancies can only be terminated inaccordance the Act and sections 59 through 68 set out the specific grounds for suchtermination which include non-payment of rent, illegal acts and so on. Clearly, clientspurchasing rental property need not only secure copies of all tenancy agreements andobtain tenant acknowledgments but be aware that he or she will be subject to theregime laid out in the Residential Tenancies Act.

Tenant Deposits

Coupled with the above discussion we also need to consider the priority of tenantsecurity deposits when purchasing under power of sale. This issue was explored in TopLink Investments Ltd v. Hutchinson 1997 CanLII 12199 (ONSC). While the relevantlegislation at that time was the Landlord and Tenant Act, it was replaced later with the

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Residential Tenancies Act, 2006 S.O. 2006, chapter 17. However, the decision is stillinstructive in what it had to say about the conflict between tenancy legislation and theprovisions of the Mortgages Act. After reviewing the relevant sections of both statutesand a number of decisions the Court concluded that tenants are entitled to the benefit ofsecurity deposits paid to the former owner and are to be credited to the tenant’s lastmonth rent. The effect then is that a purchaser buys subject to the tenant’s right to thebenefit of a prepaid security deposit and will have to absorb same if appropriateadjustments are not made on closing. In the Top Link transaction the purchaser wasonly given credit on closing for security deposits paid to the mortgagee in possessionand not those paid to the original borrower/landlord. One final point to be made on thisissue is that prepaid rent is not treated in the same manner as security deposits. In theformer the tenant assumes a risk that a change of ownership may occur before the duedate of the prepaid rent. This was clarified in Cavell v. Canada Dry Giner Ale Ltd [1945]O.W.N. 799 (Co. Ct.) which was cited in the Top Link decision.

Planning Act

The last issue is not really one of priorities but relates to a mortgagee’s obligation tocomply with the Planning Act when selling under power of sale. This issue was thecentral problem in White v. Daffern 2001 CanLII 28003 (ON SC) where Royal LifeInsurance Company of Canada became the mortgagee of thirteen parcels of land andpurported to sell some of the parcels to various purchasers including four such parcelsto the plaintiff. Unfortunately, this was an action brought by the plaintiff against thesolicitor who represented them on these purchase transactions. One of the questionscentral to the action was to determine if the solicitor had adequately considered if therewere any Planning Act concerns and this Motion was brought to answer that question.Royal Life had not obtained consents to sever and sell part of the mortgaged lands andran afoul of section 50(18) of the Planning Act which states as follows:

Foreclosure or exercise of power of sale

(18) No foreclosure of or exercise of a power of sale in a mortgage or chargeshall have any effect in law without the approval of the Minister or of the councilauthorized to give a consent under section 53, as the case may be, other than a councilauthorized to give a consent pursuant to an order under section 4, unless all of the landsubject to such mortgage or charge is included in the foreclosure or exercise of thepower of sale, but this subsection does not apply where the land foreclosed or inrespect of where the power of sale is exercised comprises only,

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(a) the whole of one or more lots or blocks within one or more registeredplans of subdivision;

(b) one or more parcels of land that do not abut any other parcel of land thatis subject to the same mortgage or charge;

(c) the identical parcel of land that has been the subject of a consent toconvey given under section 53 and the consent did not stipulate that subsection (3) or(5) applies to any subsequent conveyance or transaction; or

(d) the whole of the remaining part of a parcel of land, the other part or partsof which parcel have been the subject of a consent to convey given under section 53and the consent did not stipulate that subsection (3) or (5) applies to any subsequentconveyance or transaction. R.S.O. 1990, c. P.13, s. 50 (18); 1993, c. 26, s. 58 (1);1994, c. 23, s. 29 (7); 1996, c. 4, s. 27 (4).

None of the exceptions applied and accordingly Royal Life should have obtainedconsents for each of the sales. As it had not done so the Transfer to the plaintiffs wasvoid. Clearly, when purchasing from a mortgagee pursuant to a power of sale it wouldbe prudent to review the legal description in the mortgage to ensure that all the landscharged are being sold to the purchaser.

The reader may find the checklist I have added at the end of this paper to be of use.

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Private Mortgages:

The last topic I would like to address in this paper is the requirements to be met underthe Rules of Professional Conduct applicable to private mortgages. The first is Rule2.04 subrules (11) and (12). They state as follows:

Prohibition Against Acting for Borrower and Lender

(11) Subject to subrule (12), a lawyer or two or more lawyers practising inpartnership or association shall not act for or otherwise represent both lender andborrower in a mortgage or loan transaction.

(12) Provided that there is no violation of this rule, a lawyer may act for orotherwise represent both lender and borrower in a mortgage or loan transaction if

(a) the lawyer practises in a remote location where there are no other lawyersthat either party could conveniently retain for the mortgage or loan transaction,

(b) the lender is selling real property to the borrower and the mortgagerepresents part of the purchase price,

(c) the lender is a bank, trust company, insurance company, credit union orfinance company that lends money in the ordinary course of its business,

(d) the consideration for the mortgage or loan does not exceed $50,000, or

(e) the lender and borrower are not at “arm’s length” as defined in the IncomeTax Act (Canada).

In addition we need to look at By Law 9 of the Law Society of Upper Canada whichprovides:

Record keeping requirements when acting for lender

24. (1) Every licensee who acts for or receives money from a lender shall, inaddition to maintaining the financial records required under sections 18 and 20,maintain a file for each charge, containing,

(a) a completed investment authority, signed by each lender before the firstadvance of money to or on behalf of the borrower;

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(b) a copy of a completed report on the investment;

(c) if the charge is not held in the name of all the lenders, an original declarationof trust;

(d) a copy of the registered charge; and

(e) any supporting documents supplied by the lender.

Exceptions

(2) Clauses (1) (a) and (b) do not apply with respect to a lender if,

(a) the lender,

(i) is a bank listed in Schedule I or II to the Bank Act (Canada), a licensedinsurer, a registered loan or trust corporation, a subsidiary of any of them, apension fund, or any other entity that lends money in the ordinary course of itsbusiness,

(ii) has entered a loan agreement with the borrower and has signed a writtencommitment setting out the terms of the prospective charge, and

(iii) has given the licensee a copy of the written commitment before the advanceof money to or on behalf of the borrower;

(b) the lender and borrower are not at arm’s length;

(c) the borrower is an employee of the lender or of a corporate entity related tothe lender;

(d) the lender has executed the Investor/Lender Disclosure Statement forBrokered Transactions, approved by the Superintendent under subsection 54 (1)of the Mortgage Brokerages, Lenders and Administrators Act, 2006, and hasgiven the licensee written instructions, relating to the particular transaction, toaccept the executed disclosure statement as proof of the loan agreement;

(e) the total amount advanced by the lender does not exceed $6,000; or

(f) the lender is selling real property to the borrower and the charge representspart of the purchase price.

We then look to subsections 11 and 12 to see that to meet these requirements specificforms are provided:

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Investment authority: Form 9D

(9) The investment authority required under clause (1) (a) shall be in Form 9D.

Report on investment: Form 9E

(10) Subject to subsection (11), the report on the investment required underclause (1) (b) shall be in Form 9E.

Report on investment: alternative to Form 9E

(11) The report on the investment required under clause (1) (b) may be containedin a reporting letter addressed to the lender or lenders which answers everyquestion on Form 9E.

While the above provisions should be carefully considered I suggest we can paraphraseand form a basic statement that:

1. We can act for both the borrower and lender in mortgage transactions notexceeding $50,000.00 or where the mortgagee is a bank, trust company orsimilar organization lending money in the normal course of business. Otherexceptions may apply as noted.

2. In addition to all the usual document provided to a mortgagee with a report letterForms 9D and 9E will be required for all mortgages except again where themortgagee is a bank, trust company or similar or the loan is less than $6,000.00.Other exceptions may apply.

We should not forget however that there may be situations where not only independentlegal representation should be considered but perhaps independent legal advice for oneparty due to a conflict of interest. For example, where two individuals mortgage aproperty owned by them both but funds are to be used for a business adventure of one.

Conclusion:

I have to conclude by thanking Stewart Title Guaranty Company for not only inviting meagain this year to present another paper but for showing such interest and support tohelp us all manage our practices as effectively as we can.

Michael J. Lamb March, 2013

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APPENDIX

Road Access Act R.S.O. 1990, Chapter R.34

Consolidation Period: From December 15, 2009 to the e-Laws currency date.

Last amendment: 2009, c. 33, Sched. 23, s. 8.

Definitions

1. In this Act,

“access road” means a road located on land not owned by a municipality and notdedicated and accepted as, or otherwise deemed at law to be, a public highway, thatserves as a motor vehicle access route to one or more parcels of land; (“chemind’accès”)

“common road” means an access road on which public money has been expended forits repair or maintenance; (“chemin public”)

“judge” means a judge of the Superior Court of Justice; (“juge”)

“maintain” includes the leaving of a barrier or other obstacle on an access road orcommon road; (“maintenir”)

“motor vehicle” means a motor vehicle as defined in the Highway Traffic Act; (“véhiculeautomobile”)

“road” means land used or intended for use for the passage of motor vehicles.(“chemin”) R.S.O. 1990, c. R.34, s. 1; 2006, c. 19, Sched. C, s. 1 (1).

When access road may be closed

2. (1) No person shall construct, place or maintain a barrier or other obstacleover an access road, not being a common road, that, as a result, prevents all roadaccess to one or more parcels of land or to boat docking facilities therefor, not owned bythat person unless,

(a) the person has made application to a judge for an order closing the roadand has given ninety days notice of such application to the parties and in the mannerdirected by this Act and the judge has granted the application to close the road;

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(b) the closure is made in accordance with an agreement in writing with theowners of the land affected thereby;

(c) the closure is of a temporary nature for the purposes of repair ormaintenance of the road; or

(d) the closure is made for a single period of no greater than twenty-fourhours in a year for the purpose of preventing the acquisition of prescriptive rights.R.S.O. 1990, c. R.34, s. 2 (1).

When common road may be closed

(2) No person shall construct, place or maintain a barrier or other obstacle overa common road that as a result prevents the use of the road unless,

(a) the person has made application to a judge for an order closing the roadand has given ninety days notice of the application to the parties and in the mannerdirected by this Act and the judge has granted the application to close the road; or

(b) the closure is of a temporary nature for the purposes of repair ormaintenance of the road. R.S.O. 1990, c. R.34, s. 2 (2).

Notice

(3) Notice of an application to close an access road that is not a common roadshall be served personally upon or sent by registered mail to the owner of each parcelof land served by the road who would, if the road were closed, be deprived of motorvehicle access to and from the owner’s land and, where the owner is not occupying theland, notice shall also be given to a tenant or occupant of the land by either,

(a) handing the notice to an adult person who is a tenant or occupant of theland; or

(b) posting the notice on the land in a place and manner that makes thenotice conspicuous to an occupant of the land. R.S.O. 1990, c. R.34, s. 2 (3).

Idem

(4) Notice of an application to close a common road shall be published at leastonce a week for four successive weeks in a newspaper that is circulated in the area inwhich the proposed road closure is located, the last publication to be not less thanninety days before the date fixed for the hearing of the application, and any person whouses the road is entitled to be a party to the proceedings on the application. R.S.O.1990, c. R.34, s. 2 (4).

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Idem

(5) Notice of an application made under subsection (1) or (2) shall be given byregistered mail to the clerk of the local municipality and the clerk of the upper-tiermunicipality in which the road is situated or, in the case of a road located in territorywithout municipal organization, notice shall be similarly given to the Minister of NorthernDevelopment, Mines and Forestry. R.S.O. 1990, c. R.34, s. 2 (5); 2002, c. 17,Sched. F, Table; 2009, c. 33, Sched. 23, s. 8.

Affidavit to accompany application

(6) An application under subsection (1) or (2) shall be accompanied by anaffidavit of the applicant in which shall be included a description of the road sought to beclosed, the proposed location of the barrier or other obstacle, the reasons in support ofthe closure, and, in the case of an application under subsection (1), the names andaddresses of the persons who would, if the road were closed, be deprived of access totheir lands. R.S.O. 1990, c. R.34, s. 2 (6).

Conditions for closing order

3. (1) The judge may grant the closing order upon being satisfied that,

(a) the closure of the road is reasonably necessary to prevent substantialdamage or injury to the interests of the applicant or for some other purpose in the publicinterest;

(b) in the case of an access road that is not a common road, personsdescribed in subsection 2 (3) do not have a legal right to use the road; or

(c) in the case of a common road, the persons who use the road do not havea legal right to do so. 2001, c. 25, s. 483.

Conditions

(2) The judge may impose such conditions on a closing order as he or sheconsiders reasonable and just in the circumstances. 2001, c. 25, s. 483.

Interim closing order

4. (1) Where notice as required under section 2 is not given, a judge may grantupon application made without notice an interim closing order if he or she is satisfiedthat the delay required to give notice would likely result in serious damage or injury tothe interests of the applicant. R.S.O. 1990, c. R.34, s. 4 (1).

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Terms and conditions

(2) A judge may make an interim closing order on such terms and conditions andfor such duration as the judge considers proper in the circumstances. R.S.O. 1990,c. R.34, s. 4 (2).

Setting aside order

(3) A person entitled to notice at the time an interim closing is made may applyto a judge to have the order set aside and the judge may so order where he or sheconsiders it proper in the circumstances. R.S.O. 1990, c. R.34, s. 4 (3).

Appeal

5. An appeal, lies from an order of the judge under section 2 or 4 to theDivisional Court. R.S.O. 1990, c. R.34, s. 5.

Saving

6. (1) Nothing in this Act shall be construed to confer any right in respect of theownership of land where the right does not otherwise exist at law and nothing in this Actshall affect any alternative remedy at law available to any applicant or other person.R.S.O. 1990, c. R.34, s. 6 (1).

Order of closure or dismissal of application not determination of status of road

(2) The granting of a closing order or the dismissal of an application for a closingorder under this Act shall not be construed as a determination that the road is or is not apublic highway. R.S.O. 1990, c. R.34, s. 6 (2).

Offence

7. (1) Every person who knowingly contravenes subsection 2 (1) or (2) is guiltyof an offence. R.S.O. 1990, c. R.34, s. 7 (1).

Order to remove barrier

(2) Where a person is convicted of an offence under this Act, the court mayorder the person to remove the barrier or other obstacle. R.S.O. 1990, c. R.34, s. 7 (2).

Temporary closing of forest roads

8. Nothing in this Act prevents the temporary closing of a public forest road or aprivate forest road within the meaning of the Public Lands Act where, in the opinion ofthe district manager, an emergency exists. R.S.O. 1990, c. R.34, s. 8.

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CHECKLIST

POWER OF SALE PURCHASES

Executions

Condominium Act Liens

Utilities

Realty Taxes

Corporations

Vendor Liens

Mortgage Transfers/Merger

Fixtures

Canada Revenue Agency “Super Lien”

Leases – Commercial

Leases – Residential

Tenant Deposits

Planning Act

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