What is a power of sale in commercial real estate?

What is a power of sale in commercial real estate?

A power of sale is a statutory remedy under Ontario's Mortgages Act that gives a mortgage lender the right to sell a property when the borrower (mortgagor) defaults on their obligations — typically by failing to make mortgage payments. Unlike foreclosure, power of sale does not require court approval to initiate the sale, making it the preferred enforcement mechanism for commercial real estate lenders in Ontario. In commercial real estate — including GTA industrial properties — a power of sale is triggered when a borrower defaults and the lender exercises their right to take possession of and sell the asset to recover the outstanding mortgage balance, accrued interest, and costs. The lender does not become the owner of the property; they sell it on behalf of themselves and the borrower to satisfy the debt. The power of sale process in Ontario follows a prescribed timeline under the Mortgages Act. Once a default occurs, the lender must serve a Notice of Sale (also called a Notice Exercising Power of Sale) on all parties with an interest in the property. After serving notice, there is a mandatory redemption period — typically 35 days for commercial properties — during which the borrower can cure the default by paying all arrears, costs, and interest. If the borrower does not redeem within the redemption period, the lender may proceed to list and sell the property. The lender has a legal duty to obtain fair market value for the property — they cannot sell at a distressed price simply to recover their debt quickly. This duty protects both the borrower's equity and junior creditors (second mortgagees, CRA, judgment creditors) who may be entitled to surplus proceeds after the first mortgage is satisfied. For industrial real estate buyers in the GTA, power of sale properties can present acquisition opportunities — particularly for value-add investors — as motivated lender-sellers may accept pricing that reflects the cost and uncertainty of the sale process. However, power of sale purchases carry specific risks: the property is typically sold 'as is, where is' with no representations or warranties from the lender, the lender may have limited knowledge of building condition and environmental status, and the redemption right means a deal can fall through if the borrower redeems before closing. For industrial property owners in financial difficulty, understanding the power of sale timeline is critical — the redemption period provides a window to refinance, sell the property voluntarily, or negotiate a workout with the lender before losing control of the asset. Michael Law advises GTA industrial clients navigating distressed acquisitions, power of sale opportunities, and motivated seller situations. Contact Michael at mlaw@lennard.com or (905) 917-2045.