Jefferson Properties: receiver says Tarion drew on the wrong letter of credit

On December 23, 2025, a Tarion Warranty Corporation collector wrote to the Bank of Montreal demanding $1,846,001.10 under standby letter of credit BMTO8000666OS, certifying that the money was drawn "in respect of obligations owed by the Vendor/Builder Jefferson Properties Limited Partnership to the Beneficiary." The credit, issued March 18, 2025 for $2,400,000, committed BMO to honour such a demand in full without inquiring whether Tarion had any right or claim against the party that applied for the credit or the vendor, per the Thirteenth Report of the Receiver, Oct. 2, 2026, Apps. D, F. Tarion's internal draw-down form showed $553,998.90 remaining on it, per the Thirteenth Report, App. G.

On January 5, 2026, the receiver's counsel asked Tarion's counsel to confirm that the amount related only to the project's freehold units. Adam Slavens of Torys LLP replied on January 19: "Tarion confirms that the $1,846,001.10 only relates to freehold homes," per the Thirteenth Report, App. G. The credit, according to the receiver, had been posted for the project's 60 stacked condominium townhomes, per the Thirteenth Report, para. 22.

On October 6, 2026, Albert Gelman Inc., receiver of 2011836 Ontario Corp. and Jefferson Properties Limited Partnership since December 21, 2023, filed a motion asking the Commercial List to make Tarion unwind the draw, which the receiver's Thirteenth Report of October 2 calls "a breach of Tarion's obligations under the Vendor Agreement," per the Thirteenth Report, paras. 1, 26. Justice Conway set it down the same day for a half-day hearing on March 9, 2027, per the Endorsement of Justice Conway, Oct. 6, 2026, para. 2.

The receivership, over Richmond Hill Grace, a 96-unit townhome project at 39, 53 and 67 Jefferson Side Road in Richmond Hill, was reported here on May 18 (six approval and vesting orders and a $600 costs award), June 28 (the receiver's vexatious-litigant motion, as filed) and September 23 (the sale of the estate's claims to its senior lender, Cameron Stephens Mortgage Capital Ltd.), per the Reasons for Decision, Sept. 23, 2026, para. 14.

Two condominiums, two letters of credit

Richmond Hill Grace is two condominiums: a standard condominium of 60 stacked townhomes and a common elements condominium of 36 freehold townhomes, both substantially complete, the receiver reports, per the Thirteenth Report, paras. 6–9. Tarion's notices of proposal describe them separately, the first as a "Type C Standard Condominium project," the second as a "Type A Common Element Condominium project" whose 36 units "are freehold parcels of land upon which the homes will be constructed and are tied to the common element condominium," per the Thirteenth Report, App. C.

Tarion, as the report describes it, oversees Ontario's new home warranty scheme and is required to satisfy a vendor's warranty obligations, among them the return of a buyer's deposit, when the vendor cannot. Under a vendor agreement effective February 1, 2021, the partnership indemnified Tarion for its costs, expenses and losses in connection with the project, and Tarion was entitled to require security, per the Thirteenth Report, paras. 10–14 and App. B. Tarion's two notices of January 30, 2025 set that security at $40,000 a unit: $2,400,000 for the 60 stacked units and $1,440,000 for the 36 freeholds. An investor in the first mortgage that Cameron Stephens administers met both requirements on the debtors' behalf, the receiver reports, by causing BMO to issue two letters of credit, one for each set of units, per the Thirteenth Report, paras. 20–22 and App. C.

In June 2024 the court authorized the receiver to terminate and disclaim the 28 pre-receivership agreements of purchase and sale for freehold units, and it did. Buyers of freehold units then filed claims with Tarion for their deposits, which, the receiver understands, were injected into the project and not retained by the partnership. Tarion paid a number of those claims, by the receiver's understanding, and has claimed a right to be indemnified by the partnership for $3,286,001.10. On or about December 23, 2025, Tarion drew $1,440,000 on the freehold credit and $1,846,001.10 on the condo credit, "both draws having been to indemnify Tarion for amounts it paid in connection with the deposit claims related to the Freehold Units," per the Thirteenth Report, paras. 15–18, 23.

Article 3.8.3

The receiver's breach claim rests on article 3.8.3 of the vendor agreement, a general rule followed by an exception. Unless the security instrument or a written statement from Tarion says otherwise, security provided by or on behalf of the vendor secures its obligations in respect of its homes "and (ii) any other homes hereafter sold or constructed by the Vendor unless specifically released by Tarion in writing." Then: "Despite the foregoing, in connection with an Application for QFE Confirmation in respect of a condominium project, the Security provided in connection with the condominium project shall be limited to the such condominium project (including both residential units and common elements) unless the Security instrument provides otherwise," per the Thirteenth Report, para. 28 and App. B, art. 3.8.3.

The condo credit, the receiver says, was security "provided in connection with the condominium project," so Tarion could draw on it only for liability on the condo units, and its draw for freehold claims "was contrary to the requirements of article 3.8.3." The report appends both condominium declarations and a screenshot from the Home Construction Regulatory Authority's website listing two "Condo Projects" for the partnership, one of 60 units and one of 36; according to the website, that information comes from Tarion. "Tarion's own records characterize these as two separate 'condo projects,'" the report says, per the Thirteenth Report, paras. 29–36 and App. L.

The receiver's counsel had made the argument to Tarion's counsel in a letter of April 2, 2026. Of the instrument itself, the letter says: "As is standard for letters of credit, the Condo LOC contemplates that Tarion's right to draw on the Condo LOC is autonomous of the specific terms of the relationship between JPLP and Tarion." The limit, it argues, comes from the vendor agreement, and "there is no language in the Condo LOC, or any other document, to displace the presumption that this security is limited to the Condo Units." It demanded the money back plus $14,222.61 in interest accrued to March 18, 2026, which it said continued to accrue at $275.68 a day, per the Thirteenth Report, App. H. Tarion's counsel replied on April 30; according to the report, the letter advised that Tarion "was of the view that it was entitled to draw on the Condo LOC," per the Thirteenth Report, para. 32. Tarion has not yet filed a response to the motion.

The relief, and the timetable

The motion asks for an order directing Tarion, "upon the Receiver's provision of a letter of credit to Tarion in the amount of $1,846,001.10 and in accordance with and subject to the terms of the Vendor Agreement," to pay $1,846,001.10 to the receiver. In the alternative, Tarion would hold the sum as cash collateral for the debtors' obligations on the condo units and return the balance to the debtors when the warranty period for those units expires. Tarion would also pay the interest and costs incurred on the debtors' behalf in connection with the draw, and the costs of the motion, per the Notice of Motion (Letter of Credit Dispute), Oct. 6, 2026, paras. (c)–(d). The receiver is advised that $14,222.61 in interest and banking fees were incurred on Cameron Stephens' behalf as a result of the draw, and understands that the lender added them to the debtors' debt as protective disbursements, per the Thirteenth Report, paras. 37–38. The notice of motion also pleads unjust enrichment: "There is no juristic reason for Tarion's gain. Tarion had no right under the Vendor Agreement or at all that permitted it to draw monies under the Condo LOC for purposes unrelated to the Condo Units, as it did," per the Notice of Motion, Oct. 6, 2026, grounds (ee)–(gg).