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Legal Guide


Due to Canada’s constitutional framework, real property security is primarily a matter of provincial concern. Accordingly, real property security is largely governed by the laws of the province where the real property is situated. With the exception of Quebec, the various land registration systems in place throughout Canada and the types of real property security available to creditors are largely uniform. It is possible then to view the issue of real property security in Canada by looking at the common law provinces together.

Mortgage

The most common form of real property security in the common law provinces is the mortgage (or charge). In this context, borrowers grant a mortgage of their real property and related assets to lenders as security for indebtedness, liabilities and/or other obligations. There are two general types of mortgages: conventional mortgages, which generally evidence the debt secured and include a repayment schedule; and collateral mortgages, which secure a debt which is typically evidenced elsewhere (for example, by a covenant to pay in a credit agreement), and may also secure other liabilities and obligations (such as guarantees). Should a mortgagor (borrower) fail to meet its obligations secured by a mortgage, the mortgagee (lender) has a number of remedial measures at its disposal. The available list of remedies include both self-help remedies (such as taking possession or selling the property by power of sale procedures (which are not available in Alberta)) and court proceedings (such as obtaining title to property by initiating a foreclosure action, or suing the mortgagor(s) and any guarantor(s) on the covenant for payment). In British Columbia, the availability of self-help remedies on default has been severely limited by court decisions, to the extent that virtually all realizations proceedings under land mortgages now proceed by way of a court-sanctioned foreclosure process. In Quebec, the usual security given on immovable property is the hypothec. The hypothecary creditor has a number of remedies at its disposal should the borrower default, including taking the property in payment of the debt (in which case the debt is deemed to be repaid), bringing the property to judicial sale or selling it privately, all of which would require court proceedings.

Lease

A lease of land results in the transfer of occupation rights in the land from a landlord (lessor) to a tenant (lessee) for a specified term. In the common law provinces and Quebec, notice of a lease (often in the form of a short form version of the lease, or a summary of its terms) may be registered on title. Under the common law, a tenant’s interest in leased lands is freely alienable (and may be mortgaged), unless a term in the lease provides otherwise. Commercial leases generally limit tenants’ powers of alienation without the express written consent of the landlord. Mortgages of leasehold interest are an attractive form of security to creditors where the lease has particular value in itself or is of inherent importance to the operation of the borrower’s business. The landlord and the mortgagee of the tenant’s interest will typically enter into a non-disturbance agreement to give the mortgagee certain rights in respect of the lease, if the tenant should default under it. In Quebec as well, the tenant’s rights in immovable property may be hypothecated, unless the lease says otherwise, however, the tenants’ interest in the lease and premises are contractual rights, as a lease in Quebec does not create an interest in real property.

Debenture

In a security context, debentures are frequently used to provide combined security over real and personal property of corporate borrowers. They are also useful in taking security over assets located in several provinces. Where several lenders are involved, debentures are frequently issued for the benefit of each lender pursuant to a trust deed. Debentures typically provide security through charges and security interests over all present and future property, and assets of the borrower and its undertaking or business. Security over existing real property is generally by way of a fixed charge, similar to a mortgage and providing similar remedies to the lender.

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