The Hudson’s Bay Company has disclaimed 25 leases of former store spaces, and they will be returned to landlords, The Canadian Press reported.

The move comes after an Ontario court judge denied B.C. billionaire mall owner Ruby Liu’s attempt to acquire the leases tied to former Bay locations in her home province, Alberta and Ontario for $69.1 million through the now-defunct iconic retailer’s creditor-protection process.

Franco Perugini, the Bay’s senior vice-president of real estate and legal, told The Canadian Press that the landlords will get the leases back, provided that no landlord objects to the disclaimer, and the deals will be terminated on November 27. Theoretically, the Bay could have attempted to sell the leases to another prospective buyer, but the retailer instead folded its cards after Liu lost her court battle.

The Ontario Superior Court decision prevented Liu from proceeding with her quest to launch a chain of department stores under her own name. Justice Peter Osborne largely sided with the landlords, who opposed being forced to accept Liu as a tenant under the Companies’ Creditors Arrangement Act process, instead of the mall owner and senior lenders.

Liu’s proposed $69.1-million payment for the 25 leases would have only covered a fraction of the Bay’s $1.1-billion debt. The court previously approved Liu’s $6-million acquisition of three leases covering three former Bay store spaces at malls that she owns in the Vancouver area; Victoria, B.C.; and Nanaimo, B.C.

The judge said that the case ultimately boiled down to whether the opposing landlords’ interests or those of one secured creditor, ReStore Capital, should be prioritized. He found that Liu lacked the necessary retail experience and that her business plan was “deficient.”

In addition, he called Liu’s proposed chain “admirably ambitious” but “new and untested.” Osborne also noted that her company that would run the chain is a shell with no assets beyond those that she decides to inject.

Ostensibly, the Bay’s disclaimer clears the way for the landlords to charge higher rents based on today’s market values; for decades, the Bay had paid much less due to highly favourable long-term lease terms that included restrictive covenants.

The landlords set to have their leases returned include Cadillac Fairview, Oxford Properties and Ivanhoé Cambridge. Only one landlord did not oppose her bid.

Josh Burleton, a spokesman for Oxford Properties, told the Canadian Press that the Bay’s decision to disclaim the leases “brings some certainty to this lengthy and costly process and allows us to move forward.”

But the properties’ future remains unclear.

The landlords must decide whether to seek higher rents from other tenants or redevelop the spaces for multi-residential housing and other purposes. Many other Canadian retailers have redeveloped their malls into mixed-use properties due to the effects of changing market dynamics influenced by the the COVID-19 pandemic, online shopping, and other factors.

Kingsley Ma, a RE/MAX regional vice-president told Connect that some landlords may be unable or unwilling to reposition the assets into housing due to the costs involved. Many of the aging spaces face badly needed expensive repairs and upgrades that the Bay did not complete as its business was floundering.

The Bay was granted creditor protection in March and shut all stores nationwide in June after failing to secure a buyer.

It remains to be seen whether Liu will attempt to develop her proposed chain via other leased or purchased properties, a proposition that could prove to be much more expensive and lengthy.

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