On October 28, 2020, the Ontario Court of Appeal released its decision in 7636156 Canada Inc. (Re), 2020 ONCA 681 ("OMERS"), on appeal from the decision of the Ontario Superior Court of Justice in 7636156 Canada Inc. v. OMERS Realty Corporation, 2019 ONSC 6106. The case held that the landlord was entitled to draw on the full amount of a letter of credit obtained under its lease with an insolvent tenant instead of just the preferred claim equal to three months' worth of accelerated rent under the insolvency laws.
Background
Law
Upon a tenant's assignment in bankruptcy, a trustee in bankruptcy has the power to disclaim any lease of property (see Bankruptcy and Insolvency Act, s. 30(1)(k) ("BIA") and Commercial Tenancies Act, R.S.O. 1990, c. L.7, s. 39(1)).
Following a tenant's assignment in bankruptcy, the landlord is entitled to a preferred claim for three months' worth of accelerated rent under s. 136(1)(f) of the BIA if such accelerated rent is provided under the lease.
An important legal principle pertains to the autonomy of documentary letters of credit. An issuing bank is obliged to honour a draw or other demand for payment under a letter of credit ("LOC") upon compliance with the conditions specified in the LOC. A fundamental characteristic of such securities is the autonomy from the underlying transaction between the applicant and the beneficiary.
Facts
OMERS Realty Corporation ("Landlord") leased its property to 7636156 Canada Inc. ("Tenant") for a term of 10 years, commencing on May 1, 2014, and expiring on the last day of April 2024 (the "Lease"). In May 2018, the Tenant made an assignment in bankruptcy and in July 2018, the Trustee disclaimed the lease.
To see the full article click here
Footnote
* Thank you to Radha Lamba, Student-at-Law, for her assistance in preparing this article.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
