On January 1, 2012, the Prescribed Entities and Classes of
Mortgages and Hypothecs Regulations (the "Regulations")
under the Interest Act (Canada) (the "Act") came into
The Regulations expand the class of "prescribed
entities" that are exempted from the protections afforded by
Section 10 of the Act.
Section 10 of the Act provides for mandatory
prepayment terms for mortgages and hypothecs over real property
with a term of more than 5 years. Such mortgages must provide that,
at any time after the first five years of the mortgage term, the
mortgagor shall have the right to pre-pay the full amount of the
mortgage and any accrued interest outstanding at that time, subject
to the payment of a penalty of three months interest. By providing
these mandatory prepayment provisions, Parliament provided
mortgagors with the ability to renegotiate long-term, high interest
mortgages without having to pay unreasonable penalties imposed by
The Act provides exceptions to these protections –
mortgages given by corporations and joint stock companies are
specifically exempted from the prepayment provisions provided under
section 10 of the Act. The policy behind the exceptions is to
permit sophisticated commercial parties to negotiate their own
mortgage terms. However, prior to the Regulations coming into
force, enterprises not structured as corporations or joint stock
companies occasionally had difficulty in securing long-term
financing because prepayment terms were prescribed by the Act and
some lenders were unwilling to advance funds with a prepayment
penalty limited to three months interest.
The Regulations reflect the modern commercial reality that
business enterprises are now structured in a variety of ways. As of
January 1, 2012, in addition to corporations and joint stock
companies, the following entities would be excluded from the
mandatory prepayment protections under the Act:
Trusts that are settled for business or commercial
Unlimited liability entities under corporate/company
legislation in Alberta, British Columbia and Nova Scotia.
Note that in Ontario, section 18 of the Mortgages Act
(Ontario)contains similar mandatory prepayment terms for
mortgages longer than 5 years. This provincial legislation has not
yet been updated to add exempt entities other than
"corporations" or "joint stock companies" as
Ryan Therrien's practice focuses on
financing transactions, including syndicated lending, acquisition
financing, asset-based lending and project finance.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).