Within a six-week period in the first quarter of 2025, two Canadian retail empires obtained creditor protection under the Companies’ Creditors Arrangement Act, RSC 1985, c 36 (the “CCAA”).
Peavey Mart obtained CCAA protection on January 27. Hudson’s Bay Company obtained CCAA protection on March 7. Both retailers promptly announced plans to shutter dozens of retail stores across Canada.
This article will discuss four options available to landlords to protect their interests when their tenants obtain CCAA protection:
- requiring more frequent payment of post-filing occupation rent by tenants operating under CCAA protection;
- obtaining fair valuation of landlords’ claims under terminated leases;
- obtaining classification of claims of landlords as a separate class of creditors; and
- collective action and sharing of information by landlords.
1. More frequent payment of post-filing occupation rent: Apply to the Court for an Order
If a lease with a tenant calls for monthly payment of rent, the landlord may wish to consider applying to the Court within the CCAA proceedings for an Order requiring the tenant to pay post-filing occupation rent in advance every two weeks – calculated in accordance with the terms of the governing lease arrangements and on a per diem basis (meaning the amount of rent payable monthly would be calculated in proportion to the period of actual occupation).
Further, as a safeguard to ensure that the tenant makes such payments of occupation rent in a timely manner, the CCAA Initial Order could also be amended to provide that, if any such post-filing occupation rent remains outstanding for more than six days after notice of non-payment has been given by a landlord, the stay of proceedings under the CCAA Order with respect to such premises shall cease to have effect (leaving the landlord free to exercise its remedies against such leased premises).
Such provisions will serve to protect the interests of landlords against a scenario in which the tenant defaults in payment of post-filing occupation rent, seeks to repudiate one or more leases, and seeks to deal with the unpaid occupation rent in the Plan of Arrangement, rather than actually paying post-filing occupation rent to the landlord.
As well, such provisions would clarify that the tenant is required to pay per diem occupation rent for the period from the date of the CCAA filing until the end of the month during which the CCAA filing occurred (the “Month of Filing Stub Period”). This would prevent the tenant from being able to assert that payment of any rent for the Month of Filing Stub Period amounts to payment of pre-filing arrears or is prohibited by the CCAA Initial Order.
2. Fair valuation of landlords’ claims under terminated leases
In many cases involving the insolvency of large retail store chains, the insolvent company may be a party to dozens – or hundreds – of leases with as many landlords.
In such cases, it is common for the debtor company to seek to “downsize” or to abandon or terminate leases for a certain portion of its store locations. When downsizing is contemplated in the Plan of Arrangement, landlords may wish to consider taking early proactive action to ensure that the claims of those landlords whose leases are terminated by the tenant are valued fairly and appropriately in the tenant’s Plan of Arrangement.
The settlement offered by a debtor in a Plan of Arrangement for claims outstanding at the time of the CCAA proceeding is up to the debtor. The CCAA is silent and does not provide rules for the specific valuation of landlord claims.
However, the courts have provided guidance in respect to the valuation of a landlords claim, and, for example, have allowed for a landlord to claim under the CCAA to recover the unexpired portion of a lease in the amount of the non-discounted value of the lease payments for the unexpired lease term.
Other similar methods of valuation have been followed in subsequent cases (see Re Alternative Fuel Systems Inc., 2004 ABCA 31; see also Re San Francisco Gifts Ltd., 2004 ABQB 705, aff’d 2004 ABCA 386).
3. Classification of landlords’ claims as a separate class of creditors
Landlords whose leases are repudiated by the tenant may wish to initiate dialogue with the tenant to the effect that they expect to be dealt with as a separate class of creditors under any Plan of Arrangement ultimately filed by the tenant.
Such landlords may have claims that are significantly larger than the general body of unsecured creditors distinct from the interests of the general body of unsecured creditors of the tenant. In many cases, such landlords may not have any reasonable prospect of a continuing business relationship with the tenant. As a result, their interests are distinct from the general body of creditors.
In those circumstances, classification of landlords into a separate class of creditors would fairly and accurately reflect the unique position of these landlords and their separate and distinct interests. It would also help ensure that whatever Plan of Arrangement is ultimately put forward by the tenant treats the claims of landlords fairly and equitably (because the landlord class would have to vote in favour of any Plan of Arrangement by the required statutory majority in number and two-thirds in dollar value in order for any such Plan of Arrangement to be approved by the creditors of the debtor under the CCAA).
4. Collective action and information sharing by the landlords
Landlords of a multi-store tenant are often a very diverse group. The tenant operating in CCAA protection will often seek to discourage collective action by its various landlords, in order to minimize the leverage and bargaining power available to the landlords in the course of negotiations with the tenant within the CCAA proceedings.
Landlords may wish to consider collective action and sharing of information between them to achieve greater legitimacy and credibility as a distinct constituency of CCAA stakeholders – whether in appearances before the Court, in discussions with the court-appointed Monitor or in direct negotiations with the tenant.
These tips reinforce that landlords can take proactive measures if their tenant has entered into CCAA protection. If you are a landlord with a tenant entering CCAA protection or currently under CCAA protection, the insolvency and restructuring group at MLT Aikins is well-equipped to advise you. Contact us to learn more.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
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