Reno- Depot Wins Right To Recoup Sale

On May 7, 2003, Réno-Dépôt Inc. resisted a motion by 1427814 Ontario Limited, the plaintiff, for an interlocutory injunction. The injunction was to prevent Réno-Dépôt from exercising its power of sale rights in connection with two mortgages registered against title to 130 acres in the Town of Oakville (the property) as security for a loan advanced by Réno-Dépôt to the plaintiff.

On November 1, 2001, Réno-Dépôt loaned the plaintiff $10.7 million to purchase the property for commercial development. As security for the loan, the plaintiff gave Réno-Dépôt a freehold and a leasehold mortgage, which provided that the loan was repayable in full, with interest, on December 31, 2002. Also on November 1, 2001, Réno-Dépôt and the plaintiff entered into a purchase and sale agreement pursuant to the terms of which the plaintiff agreed, pending the plaintiff\'s securing of municipal approvals, to sell 10 acres of the property to Réno-Dépôt for the construction of a “The Building Box” store.

In December 2002, Réno-Dépôt registered notice of its interest in the property in accordance with its rights under the agreement. The plaintiff failed to repay the loan on December 31. On January 16, 2003, Réno-Dépôt served notices of sale under the mortgages. On February 24, the last day on which the plaintiff was entitled to repay the mortgages in order to avoid losing the property under power of sale, the plaintiff commenced an action against Réno-Dépôt and brought an interlocutory injunction to restrain the sale of the property by Réno-Dépôt. The plaintiff advanced three arguments in support of its motion: (1) the purchase and sale agreement had terminated on January 1, and the continued registration of Réno-Dépôt’s interest in the property was wrongful and in bad faith; (2) Réno-Dépôt acted in bad faith by failing to co-operate with the plaintiff in obtaining the necessary municipal approvals for the property; and (3) the notices of sale issued by Réno-Dépôt were invalid.

The plaintiff’s motion was argued on April 17. In reasons released on May 7, the court rejected the plaintiff’s arguments and dismissed its motion, with costs. The court ruled that the plaintiff took no step to seek replacement financing to repay the loan prior to December 31, 2002, and there was no misconduct in the steps taken by Réno-Dépôt’s interest in the property.

The court held that it was not prepared to conclude that Réno-Dépôt failed in any contractual obligation upon it in connection with the municipal approvals for the property. The court determined that there was no bad faith or analogous conduct on the part of Réno-Dépôt. The court refused to stand in the way of the exercise by Réno-Dépôt of its legitimate rights under the mortgages.

As a result of the court’s decision, Réno-Dépôt is now free to sell the property under power of sale to recoup the monies owing on the loan which, with interest, now amount to approximately $11.5 million.

William Chalmers, supported by Norman Kahn (real estate) and Steve Zakem (municipal and land use planning) of Aird & Berlis LLP acted for Réno-Dépôt. Maurice Neirinck acted for the plaintiff.