CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
3.8 Lenders’ Liability Under Environmental Laws Holding security will not generally expose a lender to environmental liability, although the value of the secured asset could be reduced if that liability arises during the term of the loan. Upon realising on the security and taking possession or control of the sub - ject lands, a lender (or its receiver) could be exposed to environmental liability. 3.9 Effects of a Borrower Becoming Insolvent If security interests are granted by a borrower on a legitimate bona fide basis, for good consideration, the subsequent insolvency of the borrower will not generally affect the enforceability of the security inter - est. However, the secured party’s enforcement pro - ceedings may then be subject to court oversight and associated delays. If security was granted for little or no consideration, or on any basis where the intent of the grant of security was to prefer certain debts over others, federal legislation imposes “claw-back” rules that could impair or invalidate the security. 3.10 Taxes on Loans As discussed in 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security , nominal reg - istration fees apply to the registration of a mortgage, an assignment of rents, a hypothec or any other reg - istered real property security. Provincial governments are responsible for land-use planning (other than on federal lands) but delegate most planning and zoning functions to municipalities. Much of the regulation of real property is in the form of zoning by-laws and building by-laws (informed by provincial policies and plans, municipal official plans and plans d’urbanisme ). Municipal by-laws regulate nearly all aspects of land use, the nature of buildings thereon, and the size and intensity of development of land. Zoning and building by-laws designate geographic zones within the municipality and prescribe the uses allowed in each zone, limit density, dictate height and 4. Planning and Zoning 4.1 Planning and Zoning Framework
payment, sale by a secured creditor, sale by judicial authority and taking possession for the purposes of administration. A lender is obliged to give “reasonable notice” before making a demand for payment and will generally be required to send notices under federal bankruptcy legislation before seeking to enforce its security over the interest in land. In New Brunswick, Ontario, Prince Edward Island and Quebec, the lender is free to sell the property privately by a prescribed process, while reserving the right to sue the borrower for any defi - ciency in the sale proceeds. In Alberta, British Colum - bia, Ontario and Quebec, the lender can sue for fore - closure (resulting in title to the property passing to the lender in full satisfaction of the debt). More commonly, most provinces also permit a lender to apply to court for a judicial sale of the property, with the borrower remaining liable for any resulting deficiency (subject to certain exceptions in some provinces). While lenders will often seek to find a commercial solution for problematic loans (including by way of for - bearance), in an environment of higher interest rates and reduced access to capital for some real estate investors, it appears that lenders are more willing in the current climate to pursue enforcement of their security. Timeframe The range of time for a lender to successfully enforce and realise on real property security will be highly fact- dependent; however, three to six months would not be unusual in uncontested cases where there is little to no equity in the project. 3.7 Subordinating Existing Debt to Newly Created Debt Certain statutory liens for property taxes, pension def - icits, construction liens or other statutory remittance obligations may have priority over secured debt, even if the secured debt was registered/perfected prior to creation of the lien. Otherwise, debt secured by reg - istration may generally only be subordinated to new debt by agreement of the existing secured party.
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