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Court Lifts Writ to Allow Sale of Condo Units

In a recent Ontario decision, the court agreed to lift a valid writ of execution that was preventing the sale of three units in a new condominium development from closing.

On one side of the dispute was the developer/owner of the property, “90 George Street Limited”, together with 160420 Canada Inc., which had mortgages covering all unsold condominium and commercial units located on it. On the other side was Donley Investments Ltd. (“Donley”), which had filed a writ of execution on the property owned by 90 George after obtaining a $400,000 judgment against that company in 2010. Donley’s writ covered three units on the property that had imminent closing dates under valid agreements of purchase and sale. The underlying judgment was being appealed by 90 George, and was still pending.  

However, the property was also subject to other third-party encumbrances in the form of mortgages, tax arrears, and other securities totalling $28.5 million, all of which predated Donley’s judgment and took priority over the writ of execution that it had obtained.

Donley refused to give its consent to lift the writ to allow the sales of the three condominium units to close.  It claimed that if the writ was lifted, there would be no post-closing funds remaining to satisfy its $400,000 judgment because any sale proceeds – amounting to approximately $3.9 million – would by law go first to the mortgagees and others in priority to Donley.  Eventually one of the mortgagees, 160420 Canada Inc., applied to the court for a declaration requiring Donley’s writ to be lifted to allow for the sale of the three units.  

At trial, Donley’s objections to lifting the writ were mainly procedural: it claimed that under the Rules of Civil Procedure, the only persons entitled to remove or withdraw a writ are:  1) the person who filed it; 2) the Sheriff; or 3) the debtor. In this case, the application was being brought not by 90 George, but rather by a mortgagee, whose rights to request a writ to be lifted arise only as part of exercising a Notice of Power of Sale under the Mortgages Act (which was not the situation here). Nor was there an order of discharge or certificate of full performance in place, as required by the Rules. In other words, Donley claimed that in these particular circumstances the court had no statutory authority to lift the writ because the necessary prerequisites had not been met.

Donley also disputed the court’s inherent power to lift the writ based on unfairness or prejudice, and claimed that – even if such power existed – this was not an appropriate situation in which to exercise it in any event. (Indeed, Donley argued that as amongst the parties, it alone was the entity to suffer prejudice, because Donley had followed the Rules by first obtaining the $400,000 judgment against 90 George in due course, then filing the writ, and then putting off any further action on the writ while awaiting 90 George’s appeal).

After considering the parties’ arguments, the court disagreed with Donley’s position.  First, it confirmed that the interests of the mortgagees such as 160420 Canada Inc. clearly had priority over Donley’s writ.  Next, the court concluded that it did have jurisdiction to lift the writ in the right circumstances, in light of the principles of fairness and equity.  

Evaluating the parties’ situations practically and factually, the court noted that by allowing the unit sales to remain blocked because of the writ, there would be actual prejudice occasioned not so much to Donley, but more predominantly to 90 George, to the mortgagees, and to the three buyers of the units (since their sales could not close). Also, the taxes and condo fees could not be paid off, and the significant outstanding debt which sat in priority to Donley’s writ would continue to grow.  

Most importantly, the court commented on Donley’s admitted motive in forcing the matter to court, which was to put pressure on 90 George and the mortgagees to make a deal to resolve the outstanding issues, pending the stay of the writ and the hearing of the underlying appeal.  However, it was not in the interests of justice to allow Donley to stall, put pressure on the other parties, and prevent commerce from occurring in the condominium development. Nor was the court in a position to favour Donley over the other parties merely to enhance Donley’s bargaining power.  It said:

“The attempt to restrain the vendor from selling vacant units which is the only means by which the vendor’s debts can be paid and when the writ holder has no entitlement to proceeds of sale due to the priority of other lien claimants, is inconceivable.”  

 
In the end, the court concluded that it was in 90 George’s best interests to be able to sell the vacant condo units in a timely manner, so that creditors and other writ holders did not suffer ongoing prejudice. Accordingly, the court granted the declaration lifting the writ, but stipulated that sale proceeds were not to be paid to 90 George or to any party that did not have priority over Donley.  Moreover, Donley was also entitled to an advance summary of the proposed payout of the sale proceeds for each unit, until such time as the writ was no longer valid.  See:  160420 Canada Inc. v. Donley Investments Ltd., 2011 (ONSC).