Med Group Ontario Inc. v. Owemanco Mortgage Holding Corp., 2026 ONSC 703
In Med Group Ontario Inc. v. Owemanco Mortgage Holding Corp., the Ontario Superior Court of Justice delivered a pointed reminder to private lenders: you cannot dress up a penalty as a “renewal fee” and expect the Court to enforce it.
Justice Dunphy’s decision is particularly important for those involved in private mortgage lending and enforcement, where creative fee structures are sometimes used to increase returns in default scenarios.
The Facts
The borrowers defaulted on a $5 million mortgage that matured on May 1, 2025.
After failed extension negotiations, the lender purported to exercise a unilateral “automatic renewal” clause, demanding:
- A 2% renewal fee (over $100,000)
- Interest on that fee
- Additional interest charges tied to the supposed renewal
At the same time, the lender:
- Issued a s. 244 notice under the Bankruptcy and Insolvency Act
- Commenced a receivership application
On the eve of the receivership hearing, the borrowers paid out the mortgage in full under protest to avoid losing their properties and then brought this application to recover the disputed amounts.
The Central Issue: Was There a Valid Renewal?
The lender relied on a clause allowing it, “at its sole and absolute discretion,” to deem the loan renewed for one year if the borrower failed to repay at maturity.
The Court rejected this argument entirely.
Justice Dunphy held that the clause could only work if several critical terms were implied, including:
- The renewal decision must be communicated to the borrower
- It must occur before payment obligations under the renewal arise
- It must allow the borrower a real opportunity to perform under the renewed loan
Here, the lender attempted renewal after those obligations had already come due.
Penalty in Disguise
The Court went further.
Even if the clause could operate technically, its practical effect was fatal:
it functioned as a penalty for default, not a genuine renewal.
This engaged s. 8 of the Interest Act, which prohibits:
- Fines, penalties, or increased charges triggered by default that are not legitimate interest
Justice Dunphy made it clear:
A “renewal” that creates immediate default and retroactive fees is not a renewal at all, it is a penalty.
Result: Fees Must Be Returned
Because the renewal was invalid:
- The $105,900 renewal fee was not payable
- Nor was interest on that fee
- Nor were the additional interest charges tied to the supposed renewal
These amounts were improperly exacted and had to be repaid.
Three Months’ Interest? Not in Enforcement
The lender attempted a fallback argument under s. 17 of the Mortgages Act, claiming entitlement to three months’ interest.
The Court rejected this as well:
- The mortgagee was clearly enforcing its security
- Section 17 does not apply in enforcement scenarios
- The lender had accepted payout and discharged the mortgage without claiming it
There was no surviving entitlement.
Justice Dunphy described the argument that this was not enforcement as:
“preposterous”
Costs: A Split Result
- The lender recovered costs for the receivership phase
- The borrowers, however, were substantially successful in the recovery application
- They were awarded costs for that second phase
Considerations for Lenders and Brokers
This decision carries several practical lessons:
1. “Automatic Renewal” Clauses Are Dangerous
If not carefully structured and exercised:
- They risk being struck down entirely
- Especially where they operate only to trigger fees after default
2. Timing Matters
A lender cannot:
- Wait until after default obligations arise
- Then retroactively “renew” the loan
A valid renewal must be real, timely, and workable.
3. Courts Look at Substance, Not Labels
Calling something a “renewal fee” does not make it one.
If it behaves like a penalty, it will be treated as a penalty.
4. Enforcement Changes the Rules
Once a lender:
- Issues enforcement notices
- Seeks a receiver
…it will be difficult (if not impossible) to rely on borrower-protection provisions like s. 17 to extract additional payments.
5. Payments Under Protest Can Be Recovered
Borrowers who:
- Pay disputed amounts to avoid enforcement
…can still seek recovery afterward, and courts are willing to intervene where charges lack legal foundation.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com