Canada: Commercial Land Mortgage Enforcement

Last Updated: November 22 2012
Article by Douglas Shell, Q.C.

Prepared For Legal Education Society of Alberta by Douglas H. Shell, Q.C.

A. Demand(s) and Security Notice(s)

1. Upon receiving instructions the following initial searches and enquiries are generally made:

(a) title search - to confirm:

(i) the registration of the mortgage and whether the corporate mortgagor is still the registered owner;

(ii) the extent of other financial encumbrances registered against the charged lands;

(b) if the lands is a condominium property, search to be conducted to determine the name of the condominium corporation and to enquire about condo fees, and if any outstanding fees are payable, instructions should be obtained from the lender as to whether to pay such fees, which although ranking behind the lender's mortgage, can be reassessed against the lands, once the lender completes the enforcement proceedings;

(c) conduct a realty tax search of the charged lands at the relevant municipal authority, and if there are outstanding arrears, instructions to be obtained from the lender as to whether to pay taxes and arrears to reduce penalties and interest;

(d) conduct a Corporate Registry search to ensure that the corporate mortgagor/registered owner continues to be a duly registered corporation and to determine the registered office of the corporation; [NOTE: If the corporate mortgagor has been struck, an action may be brought against the mortgagor within two years of its ceasing to exist, otherwise a Court Order can be obtained continuing the corporation for the sole purpose of allowing under such mortgage the secured lender to pursue its mortgage action.]; and

(e) obtain from the lender the calculation of the mortgage debt inclusive of any realty taxes and condo fees to be paid, to be included in the lender's demand.

2. Demand is usually made on the corporate mortgagor for payment of the debt secured under the commercial mortgage. If the mortgage is a demand mortgage, a demand must be served on the corporate mortgagor.

3. If the mortgage secures a specific mortgage loan, inclusive of interest, and the periodic principal and interest payments payable over the term of the mortgage, consideration must be given to whether:

(a) the term of the mortgage has expired (or matured) thereby making the entire unpaid balance due and owing;

(b) the term of the mortgage has not expired, and if so the lender's solicitors should advise and seek instructions from the lender as to:

(i) whether the lender wishes to only enforce the mortgage for the outstanding arrears, so that the lender can preserve its future right to recover the prepayment penalty payable by the corporate mortgagor in the event the mortgage loan is paid out prior to maturity; or

(ii) the lender wishes to exercise the acceleration clause in the mortgage to claim the entire accelerated balance of the secured debt, and if so the lender most likely will not be entitled to enforce recovery of its prepayment penalty otherwise payable by the corporate mortgagor.

4. If the land charged by the commercial mortgage constitutes all or substantially all of the corporate mortgagor's property, a 10 day Section 244 Bankruptcy and Insolvency Act (the "BA") Notice of Intention to Enforce the Security of the Mortgage (the "S244 BA Notice") must be prepared and served with the demand on the corporate mortgagor.

5. A form of demand declaring all debt secured under a demand collateral mortgage, together with the applicable S244 BA Notice is attached as Tab 1, a form of demand demanding payment of the arrears under a commercial mortgage, together with the applicable S244 BA Notice is attached as Tab 2, and a form of demand declaring a mortgage loan fully due and payable together with the applicable S244 BA Notice is attached as Tab 3.

6. If the corporate mortgagor is a "farmer" as defined in Section 2 of the Farm Debt Mediation Act of Canada (the "FDMA"), namely a corporation "engaged in farming for commercial purposes that meets any of the prescribed criteria", as set out in the definition of "farming" also noted in Section 2 of the FDMA - see Tab 4, a 15 business days Section 21 FDMA Notice of Intention to enforce the mortgage (the "S21 FDMA Notice") must also be prepared and served upon the corporate mortgagor. [NOTE: failing to serve the S21 FDMA Notice is fatal to the lender's enforcement proceedings, and renders null and void all such proceedings taken before the requisite S21 FDMA Notice is filed and served - see Intek Holdings Ltd v. Grisnich (2003) 49 CBR (4th) 240 (Alta QB) with additional reasons at 49 CBR (4th) 263 (Alta QB), see also Mckenna v. Marshall (204) 1 C.B.R. (5th) 251 (Ont. C.A.)]

7. Attached as Tab 5 is a form of S21 FDMA Notice.

8. When issuing the S244 BA Notice and/or S21 FDMA Notice, consideration should be given to including any other collateral security held by the lender, including an assignment of rents and leases which quite often the secured lender obtains at the time of the granting of its commercial land mortgage, and/or any general security agreement that may charge the personal property located on or used in carrying on the business at the charged lands, or any other corporate mortgagor personal property.

9. Although the 10 day statutory period applicable to S244 of the BA, or if applicable, the 15 business days as required under a S21 of the FDMA, statutorily provide for a notice procedure, consideration must be given as well, to whether such time frames are reasonable having regard to the factors noted in the SCC Decision of Lister v. Dunlop [1982] SCJ No. 38. Attached as Tab 6 is a memorandum prepared by Davis LLP student, Gavin Millan, on the subject of the obligation of a lender to provide reasonable notice for the repayment of a demanded debt.

B. Alberta Commercial Foreclosure Procedure

1. Generally governed by Part 5 (Sections 37 - 50) of the Alberta Law Property Act (the "LPA") - see Tab 7, Division 5 (Rules 9.30 - 9.36 of the Alberta Rules of Court, Rule 6.5 of the Alberta Rules of Court) - see Tab 8.

2. See also Rules 3.3 and 3.4 of the Alberta Rules of Court - see Tab 9 , when giving consideration to commencing the action, and be aware of Section 191 of the Alberta Land Titles Act (Alta), when giving consideration to obtaining final relief in the foreclosure action - see Tab 10.

3. A grid summary of the Alberta Commercial Foreclosure Procedure is set out in Tab 11.

4. The Alberta Commercial Mortgage Foreclosure Procedure is for the most part the same as the foreclosure procedure for consumer land mortgages, save that:

(a) S40 of the LPA that limits the secured lender's remedy against an individual's lands and requires the secured lender to obtain a redemption order and to cause the secured lands to be advertised for sale before obtaining a final vesting order, and Section 41 of the LPA which fixes the redemption periods to one year in the case of farmlands, or six months in the case of non-farmland (where the lands are worth more than the outstanding amount secured under the mortgage), do not apply for the most part to land mortgages granted by a corporation; [NOTE: if there is ample equity in the charged lands, the redemption period fixed by the Court for a commercial land mortgage is about three months.]

(b) commercial land mortgages, more often than mortgages granted by an individual, charge lands leased by the mortgagor to tenants, and as a consequence the appointment of a receiver of rents, or a receiver/manager of the charged lands pursuant to Section 49 of the LPA is more often obtained; and

(c) the secured lender is generally not interested in obtaining a final order for foreclosure, that would extinguish the entire balance of the debt secured by the mortgage, and nor is the secured lender interested to obtain title to the charged lands under a "rice order" that would transfer the lands to the mortgagee at the appraised value of the lands, to preserve the mortgagee's deficiency claim against the mortgagor and the secured lender's guarantors; and more often than not the secured lender obtains a redemption order - listing by which the lands are judicially listed by a realtor and eventually sold by court approval order.

5. After expiry of the demand and requisite security notices, and in the case where the FDMA applies, the expiry of any stays of proceedings that could be issued under S21 of the FDMA, the foreclosure action is commenced by way of Statement of Claim that includes as defendants:

(a) the mortgagor;

(b) must include the current registered owner of the lands if different than the mortgagor, and any other person at law that may be in possession of the lands, against whom the secured lender wishes to enforce its remedy against the lands (ie. obtain vacant possession of the lands once transferred under a foreclosure vesting order); [NOTE: more often than not, the secured lender will not seek foreclosure and possession relief against commercially reasonable tenants, since the continued existence of the tenant increases the commercial value of the lands to be purchased by the prospective purchaser]; and

(c) may include the secured lender's guarantors.

6. An appraisal is needed to:

(a) opine on the market value and forced sale values of the charged lands, to determine if the lands have sufficient value to cover the mortgage debt, after taking into account outstanding realty taxes and amounts secured under any prior charges ranking in priority to the mortgage, for the purposes of determining the redemption period applicable to the mortgage action; and

(b) support a future judicial sale of the charged lands; and

accordingly, consideration should be given to obtaining an appraisal from a qualified appraiser immediately upon obtaining initial instructions from the secured lender. [NOTE: be sure that the chosen appraiser is certified under the Appraisal Institute of Canada and licensed under the Alberta Real Estate Act. In particular, be sure that the appraiser is an accredited AACI appraiser, and is not merely a designated appraiser for residential properties that is not accredited to opine on the value of the income and investment commercial property.]

7. To be sure that the secured lender's appraisal can be claimed as a privileged document, if needed, the appraisal instructions should be given by counsel for the lender, so that once the appraisal is completed, it may be provided to the lender's counsel and only produced if the lender is satisfied with the opinion, and when required in pursuing the chosen foreclosure remedy.

8. In some circumstances, especially where the commercial property is subject to a number of leases, or has considerable improvements that need to inspected by the appraiser, issues may be encountered in arranging for the appraiser to inspect the condition of the lands and to review the leases, which is generally required to provide a reliable opinion on the appraised value of a commercial property. In those instances, it may be necessary once the action is commenced, to obtain an order in the action to enable the appraiser to gain access to the charged lands and to review applicable leases, in order to complete the appraisal.

9. A Court order appointing a receiver of rents, or a receiver/manager of the charged lands to operate and preserve the lands while the final order remedy is pursued by the secured lender, in many cases is the cornerstone of a successful commercial foreclosure action, since:

(a) by obtaining such order, the receiver is in control of the cashflow from the lands, and can preserve the lands in the best interests of the lender and other encumbrancers; and

(b) the mortgagor no longer has to cashflow to defend the mortgagee's ultimate remedy of judicial sale.

10. An application for receiver of rents can be made under S49 of the LPA without notice, that contains a clause allowing the registered owner/mortgagor or any other affected encumbrancer, to make application to set aside or vary such order (the "Comeback Clause") .

11. Generally rents are paid at the end or the beginning of the month, and where there is evidence that the lands are rented to a number of tenants, and the registered owner/mortgagor is in default of payment of realty taxes, the court, where there has not been sufficient time to issue notice on the registered owner/mortgagor, may grant a receiver of rents order subject to the Comeback Clause.

12. The receiver appointed by Court order under S49 of the LPA, as long as the land is not substantially all of the corporate mortgagor's property, need not provide reports to the Superintendent of Bankruptcy, as otherwise required under Part XI of the BA; but where there is any concern associated with the application of Part X1 of the BA, a licensed bankruptcy trustee can be appointed receiver (who will maintain all reporting referred to under Part XI of the BA) with the power to appoint such person as the receiver deems fit to collect the rents.

13. In a number of cases, the appointed receiver is a property manager experienced in carrying on the rental business on the lands that reports directly to the Court from time to time.

14. A sample Receiver of Rents Order, that limits the receiver's powers to collecting rents, enforcing leases to recover rental arrears, and to grant new leases subject to Court approval, and otherwise preserve the lands in the foreclosure action, is attached as Tab 12.

15. As an alternative, to apply for a Receiver of Rents Order, the lender can issue notice of its assignment of rents security upon the tenant and a sample notice letter to the tenants is attached as Tab 13.

16. Since the secured lender by issuing demands on the tenants will effectively control the cashflow for the lands, there is some risk that a secured lender may be found liable to the tenants as a mortgagee in possession (although the sample demand in Tab 13 states that the secured lender will not be liable as a mortgagee in possession); and by obtaining a Receiver of Rents Order under S49 of the LPA the lender can eliminate any risk that it could be found liable as a mortgagee in possession.

17. In most cases a commercial foreclosure can proceed summarily without a full trial, but in the rare cases where a defence is filed, and summary judgment cannot be obtained, it is common for a secured lender to seek an order under S49 of the LPA to appoint a receiver of rents and/or receiver/manager of the lands to ensure that the rental revenue and value of the lands is preserved pending the Court's determination of the commercial mortgage action.

18. Subsection 13(2) of the Alberta Judicature Act (see Tab 14) also applies when seeking an order for a receiver of rents or receiver/manager under Section 49 of the LPA. The Court must be satisfied in granting the interlocutory relief, that it is just and convenient (ie just and equitable) that the Order be made while the balance of the issues as between the secured lender and the mortgagor are determined.

19. As long as the Receiver of Rents Order preserves that "status quo", such that rents and profits are preserved, and the disposition of such rents and profits are applied to cover realty taxes, receiver's costs, and to the land's reasonable operating costs, the Court can generally be convinced to grant the interlocutory Section 49 Receiver of Rents Order, especially if the evidence indicates realty tax arrears, there is some question that lands have sufficient value to cover the secured debt, and the default of the mortgagor has continued for some time.

20. The other forms of order in a commercial mortgage foreclosure generally follow the standard forms of order that apply to mortgages granted by individuals, save that in my practice:

(a) I utilize the Judicial Listing Agreement (which is attached and referenced in the Redemption Order - Listing as Schedule A of the Redemption Order - Listing), in the form attached as Tab 15; and

(b) I encourage the judicial realtors when obtaining offers to purchase in a judicial listing, to utilize the attached form of judicial offer that is accepted by the plaintiff mortgagee subject to Court approval in accordance with the Order attached as Schedule "A" to the judicial offer - see Tab16.

21. To obtain a final vesting order similar to the one attached as Schedule "A" to Tab 16, the supporting affidavit of the secured lender needs to include some evidence that the secured lender will suffer significant delay and damages, or some other real and determinable prejudice, if the Court does not grant the vesting order notwithstanding the requirements of ss191(1) of the LTA (see 124034 Alberta Ltd. v. Walton International Group Inc. [207] A.J. No 353 at paragraph 14 and Ridge Development Corporation v. Haji Holdings Inc. [209] A.J. No 1255 at paragraphs 43 - 44).

C. Potential Use of a Trustee Transfer under the Bankruptcy and Insolvency Act

1. In the event the registered owner of the lands subject to the lender's commercial mortgage is either voluntarily assigned by the registered owner into bankruptcy, or an order is obtained ordering such registered owner into bankruptcy, the Trustee of the registered owner's bankrupt estate (the "Trustee") is vested with all of the registered owner's right, title and interest in its lands; and by the Trustee filing a certified copy of either the bankruptcy order or the assignment with the Land Titles Registrar as provided for in Section 74 of the BA, the Trustee upon obtaining the approval of the inspectors of the bankrupt estate, is empowered to cause by transfer of land signed by the Trustee (the "Trustee Transfer"), the registered owner's interest in such lands to be transferred to a purchaser of the lands;

2. In those instances where the bankrupt registered owner of land subject to a secured lender's commercial mortgage is:

(a) not subject to any other subsequent mortgages or other charges that otherwise would need to be foreclosed off title; or

(b) in the case where there are subsequent mortgages or other charges registered against the lands, it is possible to obtain their consent and agreement to any proposed sale of the lands, under which it is agreed between the secured lenders how the gross sale proceeds of any proposed sale will be distributed for the voluntary discharge of their registered charges; and/or

(c) only subject to subsequent registered writs of enforcement issued in respect to unsecured judgments obtained against the registered owner; it may be possible for the Trustee and the secured lender to conclude an arrangement by which:

(d) the lands are listed for sale to attract a sale at a commercially reasonable price; and/or

(e) the Trustee agrees to assist in the closing of a commercially reasonable sale of the Lands by executing a Trustee Transfer delivered to the secured lender's solicitors to cause the lands to be transferred to the new purchaser subject only to the secured creditor's mortgage and any other mortgages held by the subsequent mortgagees who have concluded the agreement noted in paragraph C.2(b) above [NOTE: the registration of a Trustee Transfer shall cause all writs of enforcement registered against the lands to be discharged, since the right, title and interest of unsecured creditors are limited only to the property rights of the bankrupt in the lands],

under arrangement by which:

(i) the Trustee is paid a fee to cover its costs ($500-$2,000) for assisting the secured lender in causing the lands to be sold;

(ii) the remaining sale proceeds, after payment of the outstanding realty taxes, condo fees, if applicable, and realtor commissions (if applicable) and any property charges are distributed firstly to pay out the lender's first mortgage, with the balance, if applicable, distributed amongst the other secured creditors in accordance with the agreement referenced in paragraph C.2(b) above; and

(iii) the remainder if any paid to the Trustee for distribution in the mortgagor's bankrupt estate.

3. The use of a Trustee Transfer can save the cost and expenses that could otherwise occur in taking the foreclosure action, and can maximize the realization on the lands in the best interests of the secured creditors, and the preferred and unsecured creditors of the registered owner's bankrupt estate.

4. Caution must be made in preparing a Trustee Transfer, to be sure that the trustee transfer is transferring the registered owner's (bankrupt's) interest in the lands to the purchaser for the sum of $1.00 and other good and valuable consideration, so as to limit the 5% levy that otherwise applies to the Trustee sale of property, to only the sale proceeds that would be available to the Trustee for distribution in the bankrupt estate.

5. A form of Trustee Transfer is attached as Tab17.

D. Potential Use of Interim Receivership

1. In some circumstances it may prove to be cost effective and commercially reasonable to utilize the appointment of an interim receiver of the registered owner of the lands subject to a lender's commercial land mortgage, to empower the appointed interim receiver by court order, to preserve the lands, to collect the rents and profits, and lease the lands.

2. Section 47 of the BA (see Tab 18) provides that if the court is satisfied that a Section 244(1) BA Notice is about to be sent or was sent, the court may appoint a licensed trustee as interim receiver of all of the debtor's (mortgagor's) property until the earliest of:

(a) the appointment of a permanent receiver within the meaning of subsection 243(2) of the BA;

(b) the appointment of a trustee of the registered owner's bankrupt estate; and

(c) the expiry of 30 days after the date on which the interim receiver was appointed, or any other period specified by the court.

3. The interim receiver remedy is commonly taken when the lands, and rents and profits, subject to a secured lender's commercial mortgage, need to be preserved in the interim pending the expiry of the secured lender's demands and S244(1) BA Notice and, if applicable, a S21 FDMA Notice.

4. The Ontario Court held in Jacob's Hold Inc. v. Canadian Imperial Bank of Commerce (2000) 28 C.B.R.(4th) 50, that the appointment of an interim receiver to preserve a farmer's property is not a proceeding for the "enforcement of a debt", and accordingly an interim receiver of a corporate farm can be appointed in or about the time of serving the S244 BA Notice and the S21 FDMA Notice, provided that the appointment is ordered before the farmer applies for a stay under the FDMA.

5. An appointment of an interim receiver will only be made under Section 47 of the BA if it can be shown that such appointment is necessary for the protection and preservation of the charged lands in the interests of the secured lender that is serving the Section 244 BA Notice. That being said, the courts exercise the interim receivership remedy with "considerable caution" and the onus is on the applicant secured lender to prove that it has a strong prima facie case under its security, and that the appointment is necessary for the preservation and protection of the registered owner's lands (namely, evidence that assets will disappear or the estate of the registered owner will be absolutely affected in some other way). See Allied Hock Bee (Canada) Ltd. v. 979504 Ontario Ltd. (1993) 24 C.B.R. (3d) 15, and other cases cited by Holden and Morowitz under the heading "Discretion to Appoint" in their commentary on the interim receivership remedy also included in Tab 18.

E. Use of a Receivership of the Mortgagor and the Mortgaged Lands

6. The lender is certain circumstances, may also wish, in lieu of pursuing its foreclosure remedy, or any of other above remedies, to enforce its commercial mortgage, through exercising the receivership appointment remedy provided for in most, if not all, commercial mortgages.

7. The receivership remedy is commenced by Statement of Claim, and the application to appoint a receiver of the corporate mortgagor and its lands is generally made pursuant to S243 of the BA, ss13(2) of the JA and/or ss99(a) of the Business Corporations Act of Alberta.

8. The Alberta Template Receivership Order, for use in such circumstances is attached as Tab 19.

9. The receivership remedy is commonly utilized when a corporate mortgagor has a number of employees, and owns a considerable number of parcels of land subject to a secured lender's collateral mortgage, which are either leased to commercial tenants, and/or are in a state of disrepair or need completion.

10. The receivership Order empowers the Receiver to carry on the business on the lands, preserve the lands, market the lands for sale, and cause the lands to be sold with court approval under a vesting order.

F. Possible Use of the Companies' Creditors' Arrangements Act ("CCAA")

1. Where the corporate mortgagor, together with the debts of any companies affiliated with the corporate mortgagor, is more than $5,000,000, the CCAA may be utilized either by the corporate mortgagor and its affiliates or, in rare cases, by a secured lender to the corporate mortgagor or its affiliates, to apply for an initial CCAA order to obtain time to conclude an arrangement approved by the court to restructure and continue the corporate mortgagor and its affiliates, so that the corporate mortgagor and its affiliates can continue to carry on business under terms and conditions of the initial order as may be extended by the Court, pending the court approval of its arrangement, and ultimately if such approval is obtained and the mortgagor's plan of arrangement complied with, the corporate mortgagor can then continue in business in the best interests of the corporate mortgagor and its affiliates, and its respective creditors.

2. Since a CCAA initial order stays all creditors for an initial 30 days, as may be thereafter extended by the Court, including the secured lender under its collateral mortgage, is not used very often, or if at all, by a secured creditor to realize on its commercial mortgage.

3. The Alberta template standard form CCAA Order is attached as Tab 20.

4. In most cases, if a corporate mortgagor or its affiliates wishes to utilize the CCAA to work through a new plan or arrangement and preserve its business in the best interests of the stakeholders, the corporate mortgagor prior to applying for an initial CCAA Order, takes steps to secure the cooperation of its secured creditors, as the CCAA Order not only stays the secured lender but as well provides for a number of statutory charges, including debtor in possession financing, director's charges, and monitor's charges, that rank in priority to all secured lenders, including a secured lender under a collateral land mortgage.

5. I am aware of at least in one case, namely the CCAA proceedings taken in Calgary, Alberta by UBG Builders Inc. and a number of the Greenboro Homes companies and related affiliates, where a CCAA initial order was granted (I believe with the cooperation of the applicable secured mortgagees), to enable the mortgagor to continue in business, and complete the construction of its homes at commercially reasonable prices in the best interests of its creditors.

6. Attached as Tab 21 is a filed copy of a vesting order granted in the Greenboro CCAA proceedings, complete with a copy of the monitor's certificate, which was utilized to enable the Greenboro affiliated companies to complete and to sell homes to purchasers at commercially reasonable prices, free and clear of all land mortgages and builders liens, simply through the filing with the Land Titles Registrar a Monitor's Certificate approving the conveyance to the purchaser. This court order, makes clear that although a home is transferred to a purchaser free and clear of all financial encumbrances, including any lender collateral mortgage, the sale proceeds replace the lands, and are distributed in accordance with the priorities at law that existed through the registration at Land Titles prior to the closing of the sale to the purchaser.

G. Commercial Land Mortgage Enforcement Priority

1. The payment of outstanding realty taxes, inclusive of penalties, levied against land, takes priority in all circumstances over a registered commercial land mortgage, whether such realty taxes are payable prior to or after the registration of such mortgage.

2. Subsection 11(5) of the Builder's Lien Act R.S.A. 2000 c.B-7, as amended, provides that to the extent any debt secured under a collateral mortgage, constitutes loan advances made by the secured lender to the mortgagor after a lien has been registered, the builder's lien will rank in priority to the prior registered commercial mortgage to the extent of such advances – see Tab 22.

3. Pursuant to ss227(4) and 4.1 of the Income Tax Act of Canada (the "ITA") and the counterpart provisions found in ss221(1) and (3) the Excise Tax Act of Canada (the "ETA"), Canada Revenue Agency ("CRA") holds a statutory deemed trust for payment of outstanding source deductions and GST that grants to Canada Revenue Agency, subject to prescribed security interests set out in the ITA and ETA Regulations, a priority charge over all mortgaged security for the repayment of source deductions and GST payable by the secured lender's mortgagor.

4. Pursuant to ITA Regulation 2201 - see Tab 23, and ETA Regulation 2 - see Tab 24, the CRA deemed trust priority for the repayment of outstanding source deductions and GST is subject to a secured lender's rights under a mortgage that is registered before the time that the outstanding source deductions and GST become payable by the mortgagor, and provides that the CRA most probably will take priority over a secured lender's mortgage for the repayment of outstanding source deductions and GST payable by the mortgagor:

(a) if the outstanding source deductions and GST were payable prior to the registration of the mortgage; or

(b) to the extent of any lender secured advances made after the registration of the mortgage at a time when there are outstanding source deductions and GST payable by the mortgagee to CRA (if this occurs, the priority adjustment as provided for in ITA Regulation 2200, and ETA Regulation 2 would determine the priority).

5. There is no reported decision on the CRA's deemed trust priority over registered collateral mortgages, save for the decision of MCAP Service Corp. v. Hunter [205] O.J. No. 5574 which paid "lip service" to the CRA's potential deemed trust priority over a real property mortgage (this decision was subsequently reversed by the Ontario Court of Appeal in [2007] O.J. No. 429 on the ground that the summary judgment granted in the lower court in favour of MCAP Service Corp. was set aside and sent back to trial on the issue of whether the mortgagor (Hunter) failure to remit GST payments and employee source deductions to CRA resulted in a default under his residential mortgage).

6. If in the future, CRA claims any priority over secured creditors lender for the repayment of outstanding GST, the secured lender should consider taking proceedings to order the mortgagor into bankruptcy, since by virtue of 136 of the BA, CRA's claim for outstanding GST most probably will be relegated to a preferred claim subject to the secured lender's collateral mortgage. CRA's statutory deemed trust priority for the payment of source deductions and priority over a collateral mortgage is not affected by a mortgagor's bankruptcy.

7. Unfortunately there is no CRA registry that can be searched by a secured lender, or its solicitor, to determine the extent of any outstanding source deductions or GST payable by a mortgagor, prior to a secured lender making any advance secured under its collateral mortgage.

8. A secured lender can obtain from its mortgagor, at the time of granting the mortgage, a consent in the form attached as Tab 25, to authorize a secured lender to conduct a search at CRA but the practical reality is that it will be difficult to obtain a reply from CRA on a timely basis, and accordingly, in most instances, secured lenders make mortgage advances without conducting any such search.

9. Now that secured lenders are commonly obtaining collateral land mortgages limited to a certain principal sum to secure all present and future debts of its mortgagor, including an operating line of credit provided by a secured lender to its mortgagor from time to time, priority issues will result if:

(a) a new operating advance is provided by a secured lender to its mortgagor in the face of a registered builder's lien (it is rare, in providing operating financing, that a secured lender searches the title to the lands, to determine if there any registered builders liens); and

(b) if at the time of making an operating advance secured under the collateral mortgage, the mortgagor is in default to CRA in payment of its source deductions and GST.

NOTE: When providing a solicitor's opinion on the enforceability of a collateral land mortgage, counsel for the secured lender, should bring this potential priority issue to the attention of the secured lender.

10. Other priorities that apply to commercial land enforcement in Alberta are as follows:

(a) priority charges in favour of a Receiver or Receiver-Manager (the "Receiver") appointed of mortgaged lands, which can include all of a Receiver's operating costs whether or not they relate to the lands or other property of the registered owner, including any environmental damage caused to the land after the Receiver's appointment if the receiver was grossly negligent in failing to report the ongoing damages to the environmental authorities as required at law (see ss14.06(2) of the BA)

(b) debtor in possession financing, monitor's charges, director's charges, potential key supplier charges, or post-CCAA creditor charges, in the case where a CCAA order has been granted in respect of the registered owner/mortgagor; and

(c) leases to tenant of a term not more than three years that are in place but not registered at the time that the collateral mortgage is granted, and any other registered leases in favour of tenants, in the event the secured lender consents to such lease prior to registering its collateral mortgage, or subsequently adopts it [NOTE: this may indeed be the case, in the event a secured lender takes steps to collect the rents payable by a tenant] - NOTE S61 of the LTA and S95 of the LTA - see Tab 26.

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.

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  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.