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May 17, 2012

Commercial Leases: Limitation Periods for Default Proceedings - 2, 6, 10 Years?

By: Darrell Gold

How long does a commercial landlord have to bring a claim against a tenant or guarantor/indemnifier following a lease default and demand on the guarantee/indemnity?

In order to answer that, let us look at a case involving a guarantee under a mortgage that went into default. In a 2012 Ontario Court of Appeal decision, [Equitable Trust Company (The) v. Marsig, 2012] the Court dealt with the issue of determining whether a lender could pursue guarantors under a mortgage more than two years after demand under the guarantee was made. The mortgage went into default and the lender exercised its power of sale, which resulted in a deficiency.

The lender instituted proceedings against the guarantors to recover the deficiency. The guarantors moved for summary judgment dismissing the lender’s action as being statute-barred under the two-year limitation period in section 5 of the Limitations Act, 2002 [“LA”]. The lender argued the applicable limitation period was in fact 10 years pursuant to the Real Property Limitations Act, R. S. O. 1990 [“RPLA”] which applies to “an action upon a covenant contained in … a mortgage”.

At trial, the lender was successful, and the applicable limitation period was held to be 10-years as in section 43(1)(k) of the RPLA and the lender’s claim on the deficiency could continue. On appeal, the guarantor lost again.

For the complete article view the document below.

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