Enforceability of a Security Deposit Against a Trustee in the Event of the Bankruptcy of a Commercial Tenant
When negotiating a commercial lease, it is in the landlord’s best interest to require that securities be provided by the prospective tenant in order to protect the landlord against the tenant’s failure to perform its obligations under the lease. A frequent cause of a tenant’s inability to perform its obligations is its insolvency or financial difficulties. It is important for landlords to know that the tenant’s bankruptcy, or the filing by the tenant of a notice of intention or a proposal under the Bankruptcy and Insolvency Act (the “BIA”) can have the effect of negating the protection afforded by certain forms of security.