Good News for Landlords – Letter of Credit Draws are Not
Limited to a Landlord's Preferred Claim under the BIA
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 by virtue of its lease with an insolvent tenant
instead of just the preferred claim equal to three months'
worth of accelerated rent under the insolvency laws.
In OMERS, the Landlord leased its property to the
Tenant for a term of ten years. After four years, the Tenant made
an assignment in bankruptcy, and shortly thereafter, the Trustee
disclaimed the lease. Schedule C of the lease required the Tenant
to arrange for a letter of credit ("LOC") in favor of the
Landlord as beneficiary. The lease
