April 26th, 2016
When a lender, be they a large bank or a private individual, lends money to someone they will, in most cases, require security for that loan. One well-known type of security is the mortgage. A mortgage, otherwise known as a charge, is a lien or encumbrance on the property, giving the lender certain rights over the property if the borrower fails to comply with his or her obligations.
Mortgages in Ontario are governed by a couple of different laws, primarily the Mortgages Act, the Land Titles Act (or the Registry Act in a very small number of cases), and the Land Registration Reform Act.
The legislation noted above outline certain rights and obligations for both the lender and the borrower. For example, the borrower must make mortgage payments as required by the mortgage loan, and so long as the borrower complies with his or her obligations the lender must let the borrower use and enjoy the property.
The rights and obligations set out in the law itself are very limited. Because of this, specific terms are added to a mortgage at the time of registration.
Realizing that many of these specific terms were being added to each and every mortgage registered in relation to a specific lender, the Land Registration Reform Act allows a lender to file a set of standard charge terms. That way, each time a mortgage is registered, the filing number for the standard charge terms can be referred to, and the provisions of those terms are incorporated by reference into the mortgage without needing to attach all of the terms to the registered mortgage itself.
While it is very important for a borrower to be aware of the standard charge terms, especially as the borrower must acknowledge the standard charge terms at the time the borrower signs closing documents, it is equally important for lenders to know what their rights and obligations are in relation to that mortgage loan.
All of Canada's institutional lenders have developed their own sets of standard charge terms. Most if not all lenders in Ontario who have not filed their own standard charge terms incorporate certain standard charge terms filed by Dye & Durham in 2000. These charge terms, filed as number 200033, contain a number of very important clauses to protect a lender's interests. The Dye & Durham terms tend to be incorporated into private mortgages because, in part, the vast majority of the other standard charge terms are not generic, being drafted specifically for one particular lender.
Unfortunately, the Dye & Durham terms do not contain certain provisions now commonly included in standard charge terms filed by a bank.
Over the past number of months my office has developed and filed an updated set of generic standard charge terms. These standard charge terms, which can be used by any lender in Ontario, addresses matters not found in the Dye & Durham document, including:
- provisions for leasehold mortgages
- clauses relating to interest-only loans
- a prohibition on hazardous and illegal substances, and environmental contamination
- specific requirements for demolition, alteration and construction financing
- enhanced insurance requirements, including life insurance upon request
- clauses related to farm properties, and the Farm Debt Mediation Act
- extended foreclosure, power of sale and receivership rights
- additional language regarding the payment of lender fees
- the right of the lender to inspect the property
- consent to delivery of notices by electronic mail
- equivalent interest rates, to comply with the Interest Act
While the Dye & Durham standard charge terms continue to be available, and serve Ontario lenders well, if you believe that you or your clients could benefit from these new standard charge terms please do not hesitate to contact my office to discuss further.
After all, not all loans are the same, and not all standard charge terms are same either.