Executive Summary: Key Legal and Evidentiary Issues

• Lawfulness of the mortgagees’ self-help lockout and repossession after Woodside’s default and expiry of the power of sale redemption period
• Effect of a post-mortgage commercial lease on a subsequent mortgagee’s rights, and whether the mortgagor’s default automatically terminates the tenant’s leasehold interest
• Creation of a new year-to-year tenancy by conduct through service of a Notice of Attornment of Rents and subsequent dealings between mortgagees and tenant
• Adequacy of notice of termination where the mortgagees purported to terminate the lease and take possession on the same day without providing six months’ notice to a year-to-year commercial tenant
• Application of the RJR-MacDonald test for an interlocutory injunction in the context of a licensed cannabis cultivation business, including irreparable harm from loss of plants and genetics
• Appropriateness of substantial indemnity costs as a response to what the court characterized as high-handed, unlawful self-help by the mortgagees

Background and mortgage arrangements

The dispute centres on a commercial property at 11 Grigg Drive, Simcoe, Ontario, used for cannabis cultivation. The owner of the property was Woodside Greens Business Association Inc., which granted the Respondents a second mortgage in August 2023 in the amount of $3.9 million at 14% interest, with an original maturity date of March 30, 2024, later extended to October 15, 2024. In addition to the mortgage, Woodside executed a General Assignment of Rents Agreement (GARA) and a General Security Agreement (GSA) in favour of the Respondents. The GARA assigned rental income, while the GSA provided security over all accounts receivable, inventory, equipment and intangibles related to the property, and contemplated that upon default the Respondents could become the holder of any licence held by Woodside and act as its nominee until the mortgage was redeemed.

The lease and the cannabis operation

In August 2024, Woodside entered into a lease agreement with the Applicant, 1000979674 Ontario Inc., which took possession of the premises to operate a cannabis cultivation facility. The lease provided for rent equal to 10% of gross product sales, payable monthly, plus additional rent for utilities, property taxes and insurance premiums. The Applicant invested hundreds of thousands of dollars into building out and operating this licensed cannabis business, including developing cannabis plants and unique mother-plant genetics.

Default under the mortgage and notice of sale

Woodside defaulted on its obligations under the mortgage around February 28, 2025. In response, the Respondents delivered a Notice of Sale under the mortgage on or about August 29, 2025. The redemption period under that notice expired on October 5, 2025, and the mortgage was not redeemed. Only sometime in October 2025 did the Respondents become aware that the property was occupied by a tenant under a lease. Before that point, neither Woodside nor the Applicant had formally notified them of the lease.

Notice of lease, attornment of rents, and early dealings

On October 23, 2025, the Applicant became aware that a Notice of Sale had been served. On or about October 28, 2025, the Applicant received a Notice of Attornment of Rents from the Respondents, and on October 31, 2025, the Applicant registered a Notice of Lease on title. Around that time the Respondents learned the identity of the Applicant as the tenant in possession. A copy of the lease was provided to the Respondents around November 3, 2025. Shortly thereafter, on November 4, 2025, the Respondents visited the property with the Applicant’s consent to show it to potential purchasers. That same day, counsel for the Respondents emailed the Applicant’s solicitor, stating that the Respondents’ goal was to sell the property as soon as possible to recover their loan, and asking for lease particulars for interested buyers. The correspondence and arrangements for access proceeded on the footing that the Applicant was a lawful tenant in possession.

Breakdown in cooperation and the November 20 lockout

A second visit to the property was scheduled for November 14, 2025, but when the Respondents’ representatives arrived, they were denied access; the Applicant’s representative said the time had not been confirmed and proposed an alternative date of November 18, 2025. The Respondents also alleged that a piece of equipment was removed from the property on November 17, 2025, claiming that the equipment was subject to their security under the GSA. Around this period, the Applicant sent a trust cheque intended as a rent payment, but the Respondents did not cash it and no explanation accompanied the calculation of the amount. On November 20, 2025, the Respondents escalated matters by delivering a Notice of Cancellation of Attornment of Rents and a Notice of Termination of Lease Agreement to the Applicant. That same day, with the assistance of the Norfolk County OPP, they took possession of the property, changed the locks, reprogrammed key fobs, and disabled the Applicant’s security cameras, effectively locking the Applicant out of its cannabis facility.

Legal basis advanced by the respondents and the court’s rejection

The Respondents argued that, once Woodside defaulted under the mortgage and the power of sale process had advanced past the redemption period, they, as mortgagees, had an absolute right to terminate the Applicant’s lease and take possession. Justice Hilliard held that this position was based on a misunderstanding of the law. Relying on the Ontario Court of Appeal’s decision in Goodyear Canada Inc. v. Burnhamthorpe Square Inc., as well as subsequent authorities such as Purenergy Wellness Lofts Corp. v. Home Trust Co., the court confirmed that a mortgagor’s default does not automatically terminate a subsequent lease, nor does a mortgagee’s taking possession necessarily extinguish the lease. Instead, the law distinguishes between whether the mortgagee is bound by an existing lease (typically only if it consented to or knew of the lease when the mortgage was given) and whether, by its conduct after taking possession, the mortgagee creates a new tenancy with the tenant on substantially similar terms. Justice Hilliard accepted that the Respondents were not bound by the original lease when the mortgage was created, because they were unaware of the tenancy at that time. However, the court emphasized that not being bound by the original lease is not the same thing as the lease being automatically terminated, and it is only the first step in the analysis.

Creation of a new year-to-year tenancy by conduct

The court then examined the parties’ conduct after the Respondents began exercising their power of sale rights. First, the Respondents served a Notice of Attornment of Rents on the Applicant, which the court characterized as a tacit acknowledgment of the Applicant’s lawful tenancy and a basis for the Applicant reasonably to infer that its tenancy was recognized. Under the Goodyear/Corbett v. Plowden line of authority, such a notice from a mortgagee to the tenant to pay rent directly to the mortgagee gives rise to a new tenancy from year to year under the mortgagee, even if the original lease is not binding on the mortgagee. Second, the Respondents arranged visits to the premises with the Applicant’s representatives, sought the Applicant’s cooperation to facilitate showings for potential purchasers, and requested detailed particulars of the lease for those purchasers, without questioning the lease’s validity or alleging any lease default. Third, even at the hearing, the Respondents did not contend that they had terminated the tenancy for breach of lease terms, but instead continued to argue that the lease ended as of right upon Woodside’s default. Taken together, Justice Hilliard held that the Respondents’ course of conduct amounted to acting as though they had stepped into the landlord’s shoes, thereby creating a new commercial tenancy between the Respondents and the Applicant on a year-to-year basis, with the basic lease terms carrying forward absent modification.

Failure to provide proper notice and unlawful entry

Once the court found that a year-to-year tenancy existed, the common law requirement of six months’ notice to terminate applied, unless otherwise agreed. The Respondents, however, purported to terminate the tenancy and took physical possession on the very same day—November 20, 2025—by serving the termination notice and then changing locks and excluding the Applicant. Justice Hilliard held that the Respondents did not have any contractual or statutory clause in the mortgage or standard charge terms giving them an absolute right to terminate existing tenancies upon default. The mortgage and its standard terms allowed for an assignment of rentals but not unilateral extinguishment of tenancies. As a result, their entry and lockout were found to be unlawful self-help, undertaken without the required six months’ notice to the tenant under the year-to-year tenancy.

Interlocutory injunction: serious issue, irreparable harm, balance of convenience

Having concluded that the Respondents’ entry was unlawful, the court turned to the test for an interlocutory injunction under RJR-MacDonald Inc. v. Canada (Attorney General). On the “serious issue” branch, the court held that there was at least a serious question to be tried as to whether the Applicant’s tenancy had been illegally terminated and whether it retained a right to occupy the premises under the lease/tenancy arrangement. On irreparable harm, Justice Hilliard accepted that the Applicant had invested substantial funds into its cannabis operation but focused on the non-monetary aspects: time spent cultivating cannabis plants and developing unique genetics in mother plants. Those losses were not readily quantifiable or compensable by damages, particularly where the genetics existed only in the mother plants and could not easily be replicated or replaced. On the balance of convenience, the court accepted evidence that the Applicant was operating legally under a Health Canada licence, whereas there was no evidence that the Respondents had any authority to handle or cultivate cannabis, a controlled substance. The Respondents’ concern that allowing the Applicant to reoccupy the premises would jeopardize their security was rejected; the court noted that they remained free to proceed with power of sale to realize on the mortgage and also held security under the GSA over equipment and other chattels on the property. In these circumstances, the balance of convenience favoured preserving the status quo by restoring the Applicant to possession while the underlying disputes were litigated.

Outcome, injunction and costs

Justice Hilliard concluded that the Respondents unlawfully entered and took possession of the premises on November 20, 2025, improperly locking out a tenant lawfully in possession under a valid year-to-year tenancy. The court granted the interlocutory injunction in favour of the Applicant, ordering that it be restored to possession of the property. On costs, the court found that the Applicant had been wholly successful and that the Respondents’ conduct was high-handed, amounting to unlawful self-help that should be firmly denounced. The Applicant’s decision to proceed urgently to court without attempting settlement negotiations was found reasonable given the time-sensitive nature of a live cannabis operation and the abrupt lockout. Substantial indemnity costs were awarded as appropriate and proportionate to the significance of the issues and the work required to bring the motion. In the final order, the successful party, 1000979674 Ontario Inc., obtained an interlocutory injunction restoring it to possession and was awarded its costs fixed at a total of $16,971, inclusive of HST and disbursements.