In Toronto-Dominion Bank v. Hosein, the mortgagor entered into a tenancy agreement with a third party after defaulting on her mortgage. The tenancy agreement was described by the Court as a "sweetheart deal" as the rent charged was significantly below market value. TD Bank applied to set aside the tenancy agreement pursuant to section 52 of the Mortgages Act on the grounds that the tenancy agreement 1) discouraged the mortgagee from taking possession of the residential complex on default, or 2) adversely affected the value of the mortgagee's interest in the residential complex.
The tenant argued that the tenancy could only be terminated in accordance with the Residential Tenancies Act and that there were no grounds that existed to permit the landlord, TD Bank, to terminate the tenancy pursuant to the provisions of that Act.The Court held that although the Residential Tenancies Act governs the circumstances to terminate a tenancy, this is to be contrasted with the relief permitted by the Mortgages Act which seeks to set aside a tenancy agreement under certain circumstances with the result that a valid tenancy never existed in the first place. The Court of Appeal therefore found that the provisions of the Residential Tenancies Act and the Mortgages Act do not conflict as they each seek different forms of relief and the Court decided to set aside the tenancy agreement.
When tenancy agreements cause roadblocks to enforcement, mortgagees should consider whether there are grounds to set aside the tenancy agreement pursuant to the provisions of the Mortgages Act.