The Ontario Court of Appeal reviewed the rules that apply to mortgagees who take possession of properties when their mortgage is in default in Zapfe Holdings Inc. v. 1923159 Ontario Inc., 2023 ONCA 190.
- Zapfe Holdings Inc. loaned $3 million to 1923159 Ontario Inc. “192”
- This loan was secured by a mortgage on its commercial property in Bracebridge,
- 192 defaulted on the mortgage,
- Zapfe issued a “notice of sale” under the mortgage,
- On May 6, 2022, Zapfe attempted to take possession of the property
- 192 refused to vacate the premises,
- Premises were occupied by 192 and some commercial tenants,
- Zapfe did not commence a proceeding to obtain a writ of possession to enforce the mortgage,
- Zapfe made a self-help effort to take possession in the early morning hours of May 18, 2022,
- neither 192, nor the property’s tenants were present,
- 192’s principal arrived later that morning,
- police were called and advised Zapfe that they should restore possession 192
- Zapfe refused,
- 192’s principal cut the locks and re-entered.
Zapfe applied for an order restraining the 192 from access to and possession of the property, a declaration that they were mortgagees in possession of the property as permitted under the mortgage, and an order restoring the state of affairs to that which prevailed on the morning of May 18, 2022, when the Zapfe had taken possession of the property.
The application judge dismissed the application. Zapfe appealed to the Ontario Court of Appeal.
The Court referred to its decision in Hume v. 11534599 Canada Corp. (“Hume”), which contained an extensive review of the jurisprudence on the requirement that a mortgagee take peaceable possession of a property.
The legal principles set out in Hume were:
- a mortgagee who is entitled to take possession of a property must do so peaceably;
- taking peaceable possession refers to the manner in which a mortgagee who has a legitimate entitlement to possession of a property actually takes possession of that property;
- whether a mortgagee has taken peaceable possession of a property is a fact-driven inquiry that depends on the circumstances;
- at a minimum, taking peaceable possession means taking possession of a property without violence or threat of violence;
- factors that will inform a court’s assessment of a mortgagee’s conduct include whether the property was vacant or unoccupied at the time of taking possession; whether there was any physical or verbal resistance to the taking of possession at the time the mortgagee took possession; whether the property was used as a dwelling-place; and whether the mortgagee’s possession would dispossess any person of their home; and
- whether changing the locks constitutes peaceable conduct will depend upon the circumstances.
The Court held that the application judge correctly applied the core legal principles in Hume in finding that Zapfe had not taken peaceable possession, and saw no basis to interfere.
If there was not going to be a peaceable transfer of possession, then the Mortgagee should make an application to Court for an Order for Possession of the property.
In this case, they took possession and asked for “forgiveness”. No, you will just have to wait and start again.
Brian Madigan LL.B., Broker