Commitment Letters And Lender Fees: The Dire Consequences Of Careless Drafting

Background

A recent Court of Appeal for Ontario (the "Court of Appeal") decision, 660 Sunningdale GP Inc. v. First Source Mortgage Corporation (2024 ONCA 252), highlights the importance of carefully drafting lenders' fee arrangements in commitment letters to finance real estate development projects.

The respondent, 660 Sunningdale GP Inc. (the "Borrower"), is a developer who pursuant to a commitment letter (the "Loan Agreement") agreed to pay a lender fee in the amount of $426,500 (the "Lender Fee") to the appellant, First Source Mortgage Corporation (the "Lender"), as part of the consideration for a multimillion-dollar loan offered by the Lender. The Loan Agreement provided that the Lender Fee was to be partially payable with a $100,000 initial payment made at the time the Loan Agreement was accepted and executed, with the remaining payment of $326,500 to follow.