Commercial Tenant Bankruptcies and Unexpired Leases: Protecting Landlord and Debtor Interests

Description

Leased business premises and the rent they generate may be critical for both a debtor-tenant and commercial landlord alike. The Bankruptcy Code drags the unwilling landlord into complex legal proceedings and alters the contractual balance of power with the tenant, which now has the authority to assume, assume and assign, or reject its executory leases, sometimes within tight time frames. Recent amendments and laws enacted in 2020 and early 2021 have wrought further changes in the how landlords and debtor tenants negotiate with each other.

However, the Bankruptcy Code provides certain “quid-pro-quo’s” for landlords. Before assuming a lease, all defaults must be cured, and the tenant must provide “adequate assurance of future performance,” an often-litigated concept. Additional protections are afforded to shopping center landlords. Contractual disputes under the lease may be moved to or commenced in bankruptcy court.

Rejection of a lease leaves a landlord with a general unsecured claim for damages. Damages are capped under section 502, but disputes erupt over exactly which components of rejection damages are subject to the cap.

Retail tenants have continued to struggle with BAPCPA's deadline to assume or reject its leases; however, recent COVID-19 relief legislation provided a further extension of that deadline to provide debtor-tenants with more breathing room.

Listen as our experienced panel of bankruptcy counsel guides you through the maze of bankruptcy rules for assumption, assumption and assignment, or rejection of leases in tenant bankruptcies and discusses strategies for landlords and tenants to protect their rights and interests in their leases.