Med Group Ontario Inc. v. Owemanco Mortgage Holding Corporation, 2026 ONSC 703, is a timely reminder that creative drafting in mortgage commitment letters does not always survive contact with a borrower or a court. Released February 13, 2026, the decision by Justice Dunphy of the Ontario Superior Court of Justice addresses the enforceability of an automatic renewal clause in a private mortgage commitment letter and carries practical lessons for anyone who drafts, reviews, or relies on such documents.
Background
In March 2024, the borrowers, Med Group Ontario Inc. and related parties, obtained a one-year, $5 million mortgage loan from Owemanco Mortgage Holding Corporation. The loan matured May 1, 2025, and was not repaid. Negotiations over an extension failed, and Owemanco moved quickly: it served a formal demand, delivered a notice of intention to enforce security under s. 244 of the Bankruptcy and Insolvency Act, and by mid-July 2025 had issued a Notice of Application seeking the court appointment of a receiver to market and sell the properties.
On the eve of that receivership hearing, the borrowers blinked. They repaid the loan in full on September 3, 2025, but only after paying amounts they disputed, including a $105,900 renewal fee, interest on that fee, one month’s interest for early payment, and over $69,000 in legal fees. They then launched their own application seeking a refund of those payments.
The Automatic Renewal Clause
The heart of the dispute was s. 5 of the Commitment Letter, which gave Owemanco the unilateral right to “consider the Loan renewed for an additional year” if the borrower failed to repay at maturity, triggering a renewal fee of 2% of the outstanding balance plus applicable taxes. Owemanco purported to exercise this right on June 3, 2025, two days after maturity, and demanded the $105,900 fee as due and payable as of June 1, 2025.
Justice Dunphy found the clause unenforceable, on two independent grounds.
First: the renewal right had already expired. For the clause to function as a genuine renewal rather than a disguised penalty, the Court read in three implied terms: (1) the lender must communicate its renewal decision to the borrower; (2) the renewal must cure any prior default and require discontinuation of enforcement proceedings; and (3) critically, the lender must exercise the right before the borrower’s first payment obligations under the renewed loan fall due, i.e., on June 1, 2025. As Owemanco did not deliver notice until June 3, 2025, the right had lapsed.
Second: the clause violated s. 8(1) of the Interest Act. If the three implied terms are not read in, the “renewal” is nothing more than a legal fiction, a mechanism to impose an additional fee on a borrower already in default without providing any genuine benefit in return. That is precisely the kind of “fine, penalty or rate of interest” that s. 8(1) of the federal Interest Act prohibits. Either way, Owemanco could not keep the money.
The s. 17 Mortgages Act Argument
Owemanco attempted a fallback argument during oral submissions: even if the renewal fee was invalid, it should be entitled to three months’ interest under s. 17 of the Mortgages Act as a stand-alone claim. The Court rejected this squarely.
Section 17 has no application where the mortgagee is enforcing its security. Owemanco’s conduct (s. 244 BIA notice, receivership application, receiver to market and sell) was, in Justice Dunphy’s words, “the very definition of enforcement proceedings.” The suggestion otherwise was described as “preposterous.”
There was also a more fundamental problem. Owemanco had accepted payment and discharged the mortgages without ever demanding three months’ interest. Section 17 does not create a free-standing claim that survives discharge.
Key Takeaways for Transactional Lawyers
This case is essential reading for anyone who drafts or reviews private mortgage commitment letters. Several practical points emerge:
Automatic renewal clauses must be carefully timed. If your commitment letter ties a borrower’s payment obligations to a specific date (such as “the first of the month following the balance due date”), the lender’s right to trigger renewal must be exercised before that date. A clause that creates retroactive obligations is a penalty, not a renewal.
Genuine consideration is required. A “renewal” that gives the borrower nothing (no extension of time, no cure of default, no relief from enforcement) will be scrutinized as a penalty under the Interest Act, regardless of how it is labelled.
Section 17 of the Mortgages Act is not a backstop during enforcement. If your client is in enforcement mode, it cannot rely on a three-month interest entitlement it never demanded and never built into its payout statement.
Payout statements matter. What a mortgagee demands and accepts at the time of discharge shapes what it can later claim. Owemanco’s failure to demand three months’ interest on September 3, 2025 foreclosed the argument entirely.
For transactional lawyers advising lender clients, Med Group is a practical checklist for what can go wrong when enforcement and contractual rights are not carefully coordinated from the moment of default.
