Case Comment: Svecgroup Limited v. 2765 Lakeshore GP Inc. et al., 2026 ONSC 3036 (released May 25, 2026)
Real estate lenders and their counsel often assume that a clean title search at the time of registration secures their priority over construction liens. The court’s decision in these companion motions shows why that assumption is dangerous. Liens “arise” when services are first supplied to an improvement, not when claims for lien hit title, and pre-construction design and planning work can quietly start the clock months before a mortgage is registered.
The Facts
The owners of a 0.6-acre Toronto property planned an 11-storey mixed-use development. Before financing, they had retained an architectural firm to produce development plans and a planning firm to support rezoning. This preparatory work was documented in an August 2023 appraisal that valued the property at $13.9 million.
In October 2023, the mortgagees registered a $9 million mortgage against the property and paid out the entire amount in one lump sum that same day. The stated purpose was to repay an existing mortgage and fund a partnership buyout. In 2024 the owners hired Svecgroup for development management services and Batory for planning application services. Both went unpaid. They suspended work in August 2025, and registered liens of $175,395.65 and $39,434.49 respectively. The loan defaulted, the mortgagees issued notices of sale, and a sale agreement was reached at $6.8 million, conditional on clearing title. With the liens standing in the way of closing, the mortgagees brought motions under section 47 of the Construction Act, seeking a declaration that their mortgage held priority over the liens and an order discharging them.
The Priority Analysis
The court worked through the Construction Act priority scheme methodically. The mortgage was not a collateral mortgage, since it secured the primary debt rather than a contingent obligation. Nor was it a building mortgage under s. 78(2), because nothing suggested the lender intended to finance the improvement, given that the loan repaid prior charges and funded a buyout. The mortgagees’ real problem was their assumption that they held a prior mortgage under ss. 78(3) and (4).
A lien arises upon the supply of services or materials, and an “improvement” embraces all contracts concerning a single endeavor, following the reasoning in Clarkson Road. The architect’s plans and the planner’s rezoning work, both predating the October 2023 mortgage, were part of the same improvement later carried forward by the lien claimants. Architects have lien rights. Liens had therefore arisen before the mortgage was registered, making it a subsequent mortgage governed by ss. 78(5) and (6).
Where the Evidence Fell Short
Under section 78(6) of the Construction Act, a subsequent mortgagee can still gain priority for an advance if, before the advance, it received no written notice of a lien and no lien was preserved or perfected. Title abstracts showed no registered liens before the advance, so everything turned on written notice.
Their only evidence was a single bald statement from the president of the company that took an assignment of the loan in December 2025, two years after the relevant events, asserting that the mortgagees received no written notice of lien. He did not explain how he could know this, and did not even state his belief.
The court found this hearsay meaningless as evidence, noted the absence of any evidence from the mortgagees themselves or from the design firms, and drew an adverse inference. The motion, which carried a summary judgment-style onus of showing no triable issue, was dismissed in its entirety.
Lessons for Lenders and Their Counsel
Three practical points stand out for transactional practitioners. First, diligence on development properties must go beyond title. If the borrower has commissioned architectural drawings, planning opinions, appraisals referencing a development concept, or any pre-construction soft costs, liens may already have arisen, and the mortgage will rank as a subsequent mortgage no matter how clean the parcel register looks. Ask directly whether design or planning consultants have been engaged and whether they have been paid. Second, build the evidentiary record at the time of the advance, since a contemporaneous file note or statutory declaration confirming no written notice of lien was received will be worth far more than an assignee’s recollection years later. Third, when enforcement counsel later moves to clear title, the affidavit must come from someone with actual knowledge.
As this case shows, even modest liens, here under $215,000 combined against a $9 million mortgage, can stall a power of sale transaction when the lender cannot prove the basics. In the end, the mortgagees lost not because the law was against them, but because their proof was. Clear title is earned through evidence, not assumption, and that evidence is best gathered long before a sale depends on it.
