Esther Gerstel Inc. v. Scott, 2025 ONSC 1448
In a decision that should interest real estate lawyers drafting or reviewing private mortgage documents, Justice Vermette of the Ontario Superior Court recently clarified important limits on a lender’s ability to unilaterally impose mortgage renewal fees—even when the mortgage appears to grant “absolute discretion” to do so.
Background
In August 2021, Esther Gerstel Inc. (“EGI”) advanced a loan of $815,000 to Denise Michelle Scott, secured by a mortgage on her Toronto residence. The mortgage had an interest rate of 22% per annum, with a one-year term maturing on August 12, 2022. The borrower was legally represented at closing.
The mortgage contained a clause stating that if the borrower did not pay out the mortgage on the maturity date, the lender could, “in the mortgagee’s absolute discretion,” renew the mortgage for a three-month term and charge $119,900 (including a lender fee and interest) (the “Renewal Clause”).
When the mortgage matured in August 2022, the parties agreed via text message to a three-month extension for $75,000. However, when that extension expired in November 2022, the lender claimed it had exercised its discretion to renew the mortgage twice more—in November 2022 and February 2023—charging renewal fees of $30,000 each time, totaling $60,000. Notably, there was no written agreement for these alleged renewals, no text messages, and no communication whatsoever with the borrower about them.
The Legal Issue
The central question was whether the Renewal Clause permitted the lender to impose renewals and charge substantial fees without the borrower’s knowledge or consent. The borrower acknowledged owing money under the mortgage but disputed the amount, particularly the $60,000 in alleged renewal fees.
The Court’s Interpretation
Justice Vermette applied the principles from Sattva Capital Corp. v. Creston Moly Corp. to interpret the mortgage contract, reading it as a whole and giving words their ordinary and grammatical meaning. The court found that EGI could not charge the disputed renewal fees for three key reasons:
- Written Agreement Required
The schedule’s renewal clause was silent on whether renewals needed to be in writing. However, section 19 of the Standard Charge Terms 200033, which was incorporated in the mortgage, explicitly stated that mortgages “may be renewed by an agreement in writing.” Since the schedule could only modify—not eliminate—the Standard Charge Terms, and since it was silent on this point, the writing requirement still applied.For the alleged November 2022 and February 2023 renewals, there was no agreement at all, let alone a written one.
- “Absolute Discretion” Has Limits
The court rejected EGI’s interpretation that the use of the term “absolute discretion” in the Renewal Clause meant it could impose renewals and fees on the borrower without her knowledge or consent. Instead, the court held that these words meant the lender had absolute discretion to agree or refuse to agree to renew—not to unilaterally impose terms.Justice Vermette found this interpretation was necessary for consistency with the requirement for a written agreement in the Standard Charge Terms. The court also noted the obvious unfairness of allowing a lender to create defaults by charging fees the borrower never knew about or agreed to. In contrast, requiring mutual agreement created no unfairness to the lender, who retained the right to demand full payment on maturity and exercise default remedies if payment wasn’t made.
- Limited to Single Use
Even if the Renewal Clause had granted unilateral renewal rights, the court found it would not permit unlimited renewals. The “Balance Due Date” was a defined term (August 12, 2022), and the clause made no reference to a new balance due date or multiple renewals. The specific dollar amount for renewal fees and interest ($119,900) suggested a single use tied to specific calculations, not ongoing renewals with varying amounts.Under this reasoning, even accepting EGI’s interpretation, the discretionary renewal right was exercised in August 2022 for $75,000 and was exhausted.
The Judgment
The court granted summary judgment in favor of the lender for the principal amount of $815,000 plus accrued interest from November 13, 2022 to February 1, 2024 of $248,071.19, with ongoing interest at 22% per annum compounded monthly. However, the court denied the $60,000 in claimed renewal fees.
The court also granted an order for possession of the property but stayed execution for 45 days to give the borrower, who had apparently secured refinancing, a final opportunity to pay out the mortgage.
Practical Takeaways for Real Estate Lawyers
This decision offers several important lessons for lawyers advising on private mortgages:
Clarity is Essential: When drafting renewal provisions, be explicit about whether renewals require mutual agreement or can be imposed unilaterally. Ambiguity will be resolved against the drafter and in favor of requiring mutual consent.
Integration with Standard Terms: Ensure that schedules to mortgages clearly address how they modify Standard Charge Terms. Silence on key procedural requirements (like written agreements) means the Standard Charge Terms still apply.
Limits on “Absolute Discretion”: Language granting “absolute discretion” will not be interpreted to permit fundamentally unfair or one-sided exercises of power, particularly where they conflict with other contractual terms requiring agreement.
Document Everything: The first renewal succeeded because it was documented in text messages showing mutual agreement. The subsequent alleged renewals failed because there was no documentation whatsoever. Even informal communications can establish enforceable agreements, but their absence is fatal.
Single vs. Multiple Use: When drafting clauses that might be exercised multiple times, explicitly address whether they can be used repeatedly and how calculations change with each use.
This decision reinforces that courts will not interpret mortgage contracts to permit lenders to create obligations and fees without borrower knowledge or consent, even when broad discretionary language is used. Real estate lawyers should ensure their documentation clearly reflects the parties’ actual intentions and provides appropriate procedural protections.
