In Re: Curriculum Services Canada [2020 ONCA 267] the Ontario Court of Appeal affirmed the proposition that, in bankruptcy, a commercial landlord’s claim for unpaid rent is limited to the amounts provided for in section 136(1)(f) of the Bankruptcy and Insolvency Act (“BIA”).
Section 136(1)(f) of the BIA (the “Preferred Claim”) states:
136. (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:
…
(f) the lessor for arrears of rent for a period of three months immediately preceding the bankruptcy and accelerated rent for a period not exceeding three months following the bankruptcy if entitled to accelerated rent under the lease, but the total amount so payable shall not exceed the realization from the property on the premises under lease, and any payment made on account of accelerated rent shall be credited against the amount payable by the trustee for occupation rent.
The Ontario Court of Appeal was faced with an appeal from an Ontario Superior Court of Justice [Commercial List] decision which affirmed a bankruptcy trustee’s partial disallowance of a landlord’s claim. The landlord had submitted a claim in the bankruptcy for not only the Preferred Claim, but also an unsecured claim for the balance of payments owing under the lease (less amounts for mitigation of loss). The Trustee limited the landlord’s claim to those amounts that could be recovered under the Preferred Claim (i.e. (i) up to three months of rent arrears; and (ii) three months accelerated rent providing that the lease provides for accelerated rent and that accelerated rent can be reduced by the amount paid by the trustee as occupation rent, all of which can only be collected from the liquidation of assets located at the leased premises).
The Ontario Court of Appeal re-affirmed depression era case law relating to this issue, disagreed with the landlord’s assertion that more recent case law had changed that law, and held that the landlord’s claim was limited to the amounts provided for in the Preferred Claim. However, the Ontario Court of Appeal allowed the landlord’s appeal in that the landlord was entitled to make an unsecured claim for any amounts owing under the Preferred Claim that could not be satisfied by the assets available under the Preferred Claim.
The decision in Re: Curriculum Services Canada should be of great interest to landlords as it re-affirms the limited recovery available to landlords in the event of a tenant bankruptcy.
