Mortgagee Not Liable for Interfering with Tenancy

The buyer built a single-family home on land he purchased in Ottawa. Equitable Trust granted the buyer a mortgage, and had the buyer sign a statutory declaration that he would be the owner/occupier of the property as his principal residence, and that it would not be leased. Moreover, the mortgage terms required him to obtain the written consent of Equitable Trust prior to leasing the property; otherwise the mortgage was deemed to be in default.

Nonetheless, the buyer leased out the property to the Republic of Cameroon without obtaining Equitable Trust’s written consent. The rent was $144,000 per year, payable in two instalments.

Equitable Trust learned of the lease and spoke directly with the tenant to extract a promise that it would not make any further rental payments to its landlord, the buyer. It then advised the buyer that it considered him in default, and served notice on both him and the tenant that it would be applying to the court to set aside the lease. The tenant terminated the tenancy.

With no rental income, the buyer had to sell property. Equitable Trust demanded three months’ interest penalty (about $38,000) to discharge the mortgage; the buyer had to borrow money to make that payment. The buyer then sued Equitable Trust for breach of contract and for wrongful interference with economic relations.

Equitable Trust applied successfully to have the court strike the buyer’s claim as disclosing no cause of action. A claim for inducing a breach of contract was contingent upon there being a legally enforceable contract. Here, under the mortgage the buyer had a contractual obligation not to enter into a lease. He was "adopt[ing] blinders" by asking the lease to be considered in isolation, the court said. It observed:

"The foundational fault in the plaintiff’s action is his claim for damages regarding a lease he contracted not to enter into because he lacked the prior written consent of the mortgagee."

In other words, the buyer could not seek damages founded on his own contractual breach.

As for the buyer’s claim for wrongful interference with economic relations, it lacked two essential elements, namely that Equitable Trust: 1) intended to cause the buyer’s loss; and 2) used unlawful means to cause it. Here, persuading the tenant not to pay rent was not "unlawful", as it did not interfere with the tenant’s reasonable enjoyment and was not itself actionable by the tenant. Nor could the buyer show that Equitable Trust intended to cause him loss under a contract that he had agreed not to enter into. See Valenti v. Equitable Trust Co., 2011 (ONSCJ).