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ARTICLE · 07 MAY 2021

Less Than An Ideal Situation: Commitment Letters – When Are They Not Commitments?

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One issue that often concerns lenders is their requirement to advance funds under a commitment letter when the borrower has not met all of the lender's funding conditions.

CanadaFinance and Banking
Jonathan Fleisher
Jonathan Fleisher
Lauren Grossman
Lauren Grossman
Corina Capmare
Corina Capmare
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One issue that often concerns lenders is their requirement to advance funds under a commitment letter when the borrower has not met all of the lender's funding conditions. Tied to this concern is what fees, if any, can the lender charge and recover if funds are never advanced to the borrower. The recent Ontario Court of Appeal decision MarshallZehr Group Inc. v. Ideal (BC) Developments Inc.  provides some clarity on these matters.

FACTS

Ideal (BC) Developments Inc. and its affiliates (collectively, Ideal) executed a Commitment Letter on November 8, 2018 (the Commitment Letter) with MarshallZehr Group Inc. (MZ) pursuant to which MZ was prepared to provide Ideal with financing for a residential real estate project. Pursuant to the Commitment Letter, Ideal was to have fulfilled the lender's initial funding conditions before any funds were advanced by MZ. On January 23, 2019, MZ notified Ideal that it was terminating the Commitment Letter as Ideal was unable to

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