Representing Landlords In Commercial Tenant Bankruptcies: Practical Guidance on Key Issues

It is unusual for a commercial tenant to file bankruptcy without its commercial landlord (or landlords) having some idea that the tenant is in financial distress. If the tenant seeks pre-petition accommodations, the landlord will need to evaluate and document them both from a business perspective and in light of a potential bankruptcy.

Once the tenant files bankruptcy, the landlord will want to evaluate whether the automatic stay vitiates any pre-petition notices or demands or requires suspending or undoing anything. If the debtor remains in possession, the next goal is to continue getting paid on a current basis. Technically, the debtor is only obligated to pay reasonable market rent, not the amount described in the lease. Disputes can arise if the debtor wants to keep less than the entire leased premises. First day motions and the debtor's DIP financing may have terms that allow the lender to control how the landlord is paid. Landlords can sometimes form alliances with other constituencies in the case to exert greater leverage, but they have to move quickly.

If the lease is assumed, landlords must pay attention to the cure amounts. Special problems arise if there is a default after assumption. If the lease is rejected, counsel need to understand their options if post-petition rents are owed. Calculating rejection damages and applying the statutory cap is not always clear and varies by jurisdiction.

Listen as our esteemed panel discusses strategies and practical tips for representing landlords when a commercial tenant files bankruptcy.