Introduction
The Ontario Government has introduced Bill 169, the Removing Red Tape for Homeowners (No More Pushy, High-Pressure HVAC Scams) Act, 2024 (“Bill 169” or the “Bill”), which limits the registration of a Notice of Security Interest (“NOSI”) against certain residential equipment such as HVAC systems or water heaters.
Over the past few years, consumers have voiced concerns about creditors who register a NOSI on title to their real property in connection with the sale or lease of such residential equipment. These NOSIs are sometimes registered without the homeowner’s knowledge and so when they need to sell or refinance their home, they are then faced with unexpected termination or buyout costs in order to have the NOSI discharged prior to closing.
Current state of play
The Ontario Personal Property Security Act (“PPSA”) generally governs security interests in personal property and not real property. An exception pertains to fixtures (which is, broadly speaking, a chattel or equipment that has become affixed to real property). NOSIs are intended to address the priority of claims between secured creditors who have an interest in a fixture under the PPSA, and mortgagees or purchasers who have, or will have, an interest in the underlying real property. They provide lenders with a legitimate mechanism to protect their interest in the case of equipment financing and help avoid future disputes and priority battles.
However, while NOSIs serve to protect secured lenders, they can present challenges for homeowners. In many cases, homeowners may not be fully aware of the implications of these security interests or find themselves in situations where NOSIs are placed on their real property without them being fully aware of the potential consequences. Such practices can lead to financial burdens and legal complications for homeowners especially during the sale or refinancing of a home. As a result, there is growing concern over the potential for NOSIs to negatively impact homeowners’ rights. However, the limitation on the registration of NOSIs may have negative consequences for the secured creditors of such financed equipment.
Government response
Bill 169 is not the first piece of legislation to address the use of NOSIs. Under the new Consumer Protection Act, 2023 (“New Ontario CPA”), suppliers will have a positive obligation, in certain contexts, to discharge a NOSI registered on title within 15 days of the rescission, cancellation, or termination of the underlying contract. Further, consumers may engage the Director, designated by the Ministry of Public and Business Service Delivery, to assist in discharging a NOSI where a supplier fails to do so.
In the fall of 2023, the Ontario Government issued an additional consultation on issues related to NOSIs, of which public comments were due by December 1, 2023. Bill 169 is seemingly a culmination of the recent consultation process and further enhances the protections under the New Ontario CPA by seeking to amend Section 54 of the PPSA as follows:
- (i) to stipulate that a notice of security interest or an extension of such notice shall not be registered where the collateral is a prescribed consumer good; and
- (ii) to mandate that the registrar shall discharge any notice of security interest and any extension of such notice registered under Section 54 where the collateral is a prescribed consumer good, either on his or her initiative or in response to a written request from any person affected by the registration.
As proposed, the legislation does not cover any and all consumer goods, but rather will leave it to the Minister to prescribe, per Subsection 74.1(1) of the PPSA, the prohibited class of assets. It will be interesting to see how broad the Minister’s prescription will be and what, if any, unintended consequences there will be as a result.
Implications for consumers and financers
If passed, Bill 169 will have significant implications for both consumers and secured equipment creditors in Ontario. For consumers, the Bill will provide greater transparency and protection against security interests registered against their real property, particularly in transactions involving household residential equipment. Secured equipment creditors will need to adjust their practices to comply with the new provisions, ensuring that their interests are adequately protected while respecting the rights of homeowners. It is yet to be determined how priority disputes will be resolved between secured equipment creditors, mortgage lenders and new buyers or financiers of the real property and how secured creditors’ security interests in such equipment will be protected in the absence of a registered NOSI. The Bill is still in its early stages of the legislative process and may be subject to further amendments; as of March 5, 2024, it has been ordered for Second Reading.
Any member of our Financial Services team will be very happy to assist should you have any questions regarding the Bill or its implications.
