Canada: Lease Deposit Characterized As Security Interest: Summary Of Alignvest Private Debt Ltd v Surefire Industries Ltd

Last Updated: March 24 2015
Article by Shaun Parekh

In the context of a tenant's bankruptcy, Justice Romaine of the Alberta Queens Bench recently characterized a deposit provided under a lease as a security interest, as opposed to pre-paid rent, forcing an unsecured landlord to remit the money to a trustee in bankruptcy.

The Court emphasized the verbiage of the lease in order to determine the intention of the parties. Among other details, the lease provided that the deposit was "to be held without interest by the Landlord as security for the performance by the tenant of its obligations under the lease".1 The landlord failed to register a security interest under the Personal Property Security Act (Alberta) ("PPSA"). As a result, it was ordered to remit the deposit to the trustee in bankruptcy for a secured creditor who held a general security agreement ("GSA") over the tenant.

The provisions of the lease played a significant role and the decision emphasizes the importance of carefully drafting the terms in connection with a deposit given under a lease.


Surefire Industries Ltd. ("Surefire") leased its property from York Realty Ltd. ("York") (the "Lease"). In fall 2013, Surefire was placed under receivership, but was later declared into bankruptcy - Duff & Phelps Canada Restructuring Inc. was appointed as trustee of Surefire's estate (the "Trustee"). Shortly after bankruptcy, the Trustee disclaimed the Lease and York retained possession of a deposit made under the Lease for $3,187,500. Alignvest Private Debt Ltd. ("Alignvest") had a GSA over the assets of Surefire and also entered into a priority agreement with York, whereby York acknowledged the validity of Alignvest's security interest and subordinated its own interest to Alignvest's. As previously noted, York did not register its security interest.

York took the position that the deposit should be characterized as pre-paid rent and not security for Surefire's performance of the obligations under the Lease. Therefore, York argued, ownership of the deposit passed on payment and should not form part of Surefire's estate. Alignvest took the position that the deposit secured performance of Surefire's obligations under the Lease, and was therefore a security interest. As a result, it should be remitted to the Trustee where Alignvest has priority as a secured creditor.

Law & Analysis

York relied on Re Abraham, where the Ontario Court of Appeal found that a non-refundable deposit to be applied to rental payments or defaults of the tenant was pre-paid rent. On the other hand, Alignvest relied on Re Champion Machine and Tool Co. Limited, a case distinguishing Abraham on the basis that the deposit was defined as a "security deposit", and was to be retained in the event of a breach of covenant or applied to the last month of rent. In Champion, the benefit of the deposit fell to the trustee in bankruptcy and not the landlord.

Without specifically citing the application of Abraham or Champion, the Court stated that it must "look to the wording of the lease to determine the intention of the parties with respect to the deposit, whether it should be characterized as pre-paid rent, liquidated damages or security and whether it would be non-refundable in the hands of the tenant and thus with respect to the trustee in bankruptcy".2

Justice Romaine examined the provisions of the Lease that characterized the deposit, which stated the deposit was "to be held without interest by the Landlord as security for the performance by the Tenant of its obligations under the Lease"3 and if Surefire was not otherwise in default, the deposit was to be applied to rent falling due in the future. Furthermore, the Court held the following were indications that the deposit was security:4

  • The section of the Lease was entitled "Security Deposit/Rent Credit" and the deposit was defined as a "Security Deposit"
  • Prior to the receivership, York did not exercise the use of the deposit where rental payments were late
  • The deposit was only applicable to future rents once they fall due

Based on the wording of the lease and the fact that the deposit could be refunded to Surefire in particular circumstances, the Court determined that the parties intended to create a security interest, as opposed to pre-paid rent.

York also submitted that because the deposit was made under a lease (ie. interest in land), it was therefore excluded from the application of the PPSA under section 4(g). The Court rejected this argument, drawing a distinction between "right to payment" under an interest in land and "security for that right". Furthermore, the fact that the deposit may be applied to rent is not relevant – the Court held that simply because the parties have chosen a different mechanism to enforce the security, it does not change the characterization of the interest as a security.


The decision emphasizes the importance of drafting precise language with respect to rental or security deposits. As landlords do not typically register deposits under the applicable Personal Property Security Act, they must ensure that their leases do not create an unintended security interest over deposits that are subject to the claims of secured parties.


1 Alignvest Private Debt Ltd. v Surefire Industries Ltd., 2015 ABQB 149, at para 11.

2 Ibid at para 20

3 Ibid at para 11

4 Ibid at para 21

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Shaun Parekh
Similar Articles
Relevancy Powered by MondaqAI
Bennett Jones LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Bennett Jones LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions