Update on Using Letters of Credit to Vacate Liens

Last year, we wrote about the case of TruGrp Inc. v Karmina Holdings Inc. where the court adjourned a motion that considered language commonly used in letters of credit posted with the court to vacate construction liens from title. The language used in the letter of credit permits the issuing bank to not renew the letter of credit and instead replace it with a bank draft.

Unlike lien bonds, there is no standard court form for letters of credit used to vacate liens.

The court originally adjourned the motion pending submissions from the Accountant of the Ontario Superior Court of Justice (the office that holds the security posted to vacate liens) and the Bank of Montreal (the bank that issued the letter of credit at issue).

The court has now released its endorsement in TruGrp Inc. v Karmina Holdings Inc., 2024 ONSC 4643 after having received submissions from both the accountant and the bank.

Fortunately for parties who use letters of credit to vacate liens, the accountant accepted this language permitting the bank to swap the letter of credit for a bank draft. The accountant agreed that this would be sufficient security to vacate a lien. The bank agreed.

As both the accountant and bank agreed that this is sufficient security, the court did not need to decide further. This is a welcome clarification and provides comfort to parties who use letters of credit as security when vacating liens.