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.
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