Executive Summary: Key Legal and Evidentiary Issues

• Sufficiency of evidence to set aside tenancy agreements under s. 52 of the Mortgages Act.

• Distinction between pre-existing and potentially sham tenancies in the context of mortgage default.

• Admissibility and reliability of hearsay evidence in affidavits supporting applications.

• Compliance with statutory requirements for possession under the Residential Tenancies Act.

• Burden of proof on the mortgagee to establish intent to frustrate mortgagee’s rights.

• Entitlement to costs for respondents who successfully defend against the application.

Facts of the case

First National Financial GP Corporation, as the assignee of a mortgage originally held by Computershare Trust Company of Canada, sought to set aside certain tenancy agreements and obtain possession of a residential property at 736 Annland Street, Pickering, Ontario. The property was mortgaged by Roderick Omar Wallace, who later defaulted on his mortgage obligations. The mortgage was registered in April 2022, with a principal amount of $1,008,000, and was renewed in February 2024, resulting in increased monthly payments. Wallace defaulted in April 2024, leading to a default judgment against him for $1,054,365.96 plus costs, and an order for possession in favor of the applicant.

Following the default, the applicant’s property manager inspected the property and discovered two sets of tenants: Briana Marshall and Cory Higgons, who resided in the upstairs apartment, and unnamed tenants in the basement. Marshall and Higgons had leased their unit since August 2020, well before Wallace became their landlord and before the mortgage default. The applicant alleged that Wallace installed the basement tenants to frustrate the applicant’s ability to realize on its security and sought to set aside their tenancy under s. 52 of the Mortgages Act.

Discussion of policy terms and statutory provisions

The court considered the terms of the mortgage, which allowed the mortgagee to take possession or sell the property upon default. The applicant relied on s. 52 of the Mortgages Act, which permits the court to set aside tenancy agreements entered into by a mortgagor in contemplation of, or after, default if the object was to discourage the mortgagee from taking possession or to adversely affect the mortgagee’s interest. The court also referenced the Residential Tenancies Act (RTA), which restricts a mortgagee’s ability to obtain possession from tenants except in accordance with the RTA.

The test for setting aside a tenancy agreement requires proof that the tenancy was entered into by the mortgagor, in contemplation of or after default, and with the object of frustrating the mortgagee’s rights. The court noted that direct evidence of intent is rare and may be inferred from circumstances such as the timing of the lease, relationship between parties, and rental terms.

Analysis of the evidence and application of legal principles

The court found clear evidence that Marshall and Higgons’ tenancy predated Wallace’s default and was not a sham. Their tenancy agreement was legitimate, and the application was dismissed against them. Regarding the basement tenants, the applicant failed to provide sufficient evidence that their tenancy was created to frustrate the applicant’s rights. The affidavit evidence relied on double hearsay, and there was no direct proof of improper intent. The court rejected the applicant’s argument that the mere lack of cooperation or documentation from the basement tenants was sufficient to infer a sham tenancy.

The court emphasized that the applicant bore the burden of proof and could not rely on inferences unsupported by credible evidence. The absence of evidence was attributed to Wallace and the basement tenants’ lack of cooperation, but this did not relieve the applicant of its evidentiary burden.

Outcome and orders made

The court dismissed the application against Marshall and Higgons and ordered the applicant to pay them $2,500 in costs, reduced to reflect their delayed cooperation. As for Wallace and the basement tenants, the court did not dismiss the application outright but ordered them to provide full particulars of the basement tenancy, including any written agreement, rent details, and payment history, by October 31, 2025. The applicant was granted the opportunity to renew its application if the required information was not provided or if further evidence justified setting aside the tenancy.

In summary, Marshall and Higgons were the successful parties in this application, with an award of $2,500 in costs. No monetary amount was ordered in favor of the applicant at this stage, and the application remains open against Wallace and the basement tenants pending compliance with the court’s order.