​Chapter 11 reorganization allows the debtor to reject undesirable leases. If the debtor opts to reject the lease, the landlord is left with a breach of contract claim. In most instances rejection claims against the bankruptcy estate will be for less than the remaining rents under the lease as the claim is capped pursuant to the bankruptcy code.
 
Alternatively, the debtor can elect to assume the lease. Assumption requires the debtor to cure all prepetition defaults, including payment of all past due rents, on assumption.  The debtor has 120 days, which can in certain circumstances be extended another 90 days, to assume or reject the lease. During the time debtor decides to assume or reject the lease, all post-petition obligations, including payment of rent must be paid.  The court may “for cause” extend the time for performance of any post-petition rent, for up to an additional 60 days. 

Author: Andrew M. Thaler

The American Dream is to own your home.   A home is where the heart is and most likely that person’s most cherished possession.  The prospect of losing a home to judgment creditors or a bank holding a mortgage can be a homeowner’s worst nightmare.

The good news is, in contrast with the $10,000 homestead exemption that existed 24 years ago, the New York State legislature has over time dramatically increased the “homestead exemption” available to homeowners that reside in their property.
​
A homestead exemption is the amount of money protected from the reach of judgment creditors over and above consensual liens (such as mortgages and home equity loans) and statutory liens (generally tax liens) in an involuntary sale.  Prior to 1994 the New York homestead exemption was only $10,000. That was hardly enough money to purchase a new home or even pay rent for more than a few months.  In 1994 the homestead exemption was increased to $50,000.  Thereafter, the homestead exemption for persons living in NYC and the surrounding Metropolitan counties, was dramatically increased to $150,000 with adjustments to be made to that amount every three years.  The last adjustment was made in 2018. As of September 2018 the homestead exemption for Metropolitan New York counties is $170,825.  (Upstate counties have lower amounts).

Author: Andrew M. Thaler 

​In a recent Blog Article I discussed how a purchaser of real property might use the Bankruptcy Code to prevent a default under a time of the essence provision of a contract to purchase real property. In that instance the Bankruptcy Code helped the purchaser.  Conversely, the provisions of the Bankruptcy Code could result in abrogation of a purchaser’s contract rights where the seller files for bankruptcy protection.
 
Consider the following scenario. Purchaser contracts to purchase real property, and Seller refuses to close the transaction.  Because of the unique nature of real property one remedy available to a purchaser under state law is to obtain title by compelling specific performance of the contract. What happens, however, if the seller files for bankruptcy protection? That situation occurred in a recent case in which I was involved. The purchaser negotiated a favorable purchase price ($875,000) for a commercial property. For whatever reason, (perhaps realizing it had made a bad deal) the seller refused to close.  The purchaser hired an attorney who commenced proceedings in state court to compel specific performance.  Multiple motions for specific performance were made and denied due to infirmities in the purchaser’s papers.  Nearly 5 years after the contract was signed, the purchaser’s motion for specific performance remained unresolved.  Then the seller filed for bankruptcy. 

​Author: Andrew M. Thaler

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.[2]
               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.[3]
               iii. Tenant has the choice to assume, assume and assign, or reject the lease.[4]
               iv. Time periods for assumption and rejection gives the tenant time to attempt to successfully                                       reorganize.[5]
               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).[6]
          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.[7]
                         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.[8]
               ii. ​Rent accruing post-petition and pre-decision to assume or reject the lease is given priority as an                                administrative expense.[9]
               iii. ​Tenant is obligated to comply with non-monetary lease provisions.[10]
               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.”[11]
                         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.[12]
               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.[13]