Author: Andrew M. Thaler
Bankruptcy intersects with many areas of the law on a daily basis including real estate law. In some instances a bankruptcy filing might be the only way for a purchaser to avoid default under a contract to purchase real property. That being said, a bankruptcy should only be filed after careful analysis and consideration of numerous factors.
Author: Andrew M. Thaler
A. Landlord and tenant bankruptcies; overview of rights of principal players
1. Tenant files bankruptcy
a) Tenant’s rights
i. Tenant benefits from an automatic stay that stops commencement or continuation of eviction, collection, or other proceedings.
ii. Tenant has the right not to be evicted or have other action taken against it or the property without the landlord first making a motion in the bankruptcy court to lift the automatic stay.
iii. Tenant has the choice to assume, assume and assign, or reject the lease.
iv. Time periods for assumption and rejection gives the tenant time to attempt to successfully reorganize.
v. Tenant’s prior defaults are not a basis for the landlord to terminate the lease (i.e., ipso facto clauses are not enforceable in bankruptcy).
b) Landlord’s rights
i. Tenant is obligated to continue making rent payments under the lease until such time as the tenant rejects the lease.
a. “Stub rent” is the term used for the rent due during the month the tenant filed its bankruptcy petition. The bankruptcy court may order that the rent due for that month must be prorated, entitling the landlord to administrative rent only for the portion of rent representing the time period between petition date and the end of the month.
ii. Rent accruing post-petition and pre-decision to assume or reject the lease is given priority as an administrative expense.
iii. Tenant is obligated to comply with non-monetary lease provisions.
iv. If the tenant assumes and later breaches a commercial real estate lease, the landlord is entitled to damages equal to the sum of all monetary obligations due, aside from penalties, for the two year period “following the later of the rejection date or the date of actual turnover of the premises.”
a. The landlord’s claim for remaining sums due under the balance of the lease term are limited to the greater of rent for one year or 15% of three years of the remaining lease term.
v. If the lease expires on its own terms, the landlord cannot be compelled, absent a provision in the l lease, to renew or extend the lease.
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