Commercial Landlords have never been faced with more uncertain time than today; because of the COVID pandemic and the resulting state of the economy. Commercial property management companies, Landlords and Real Estate owners alike are faced with retail tenants, such as Stein Mart, JOS Banks, and others, filing for Chapter 11 protection or pursuing other insolvency and winddown options in the light of their inability to pay rent. Landlords who have a significant retail tenant occupancy are understandably concerned how these proceedings impact their rights.

When a tenant seeks relief under Chapter 11 or any other insolvency proceeding, that tenant’s goal as a practical matter is to pay creditors, such as Landlords, as little as possible. However, there are certain laws and bankruptcy code provisions that protect Landlords in different ways than other creditors in a bankruptcy case. In fact, these laws if applied correctly can maximize recovery to a Landlord who otherwise would not expect to extract significant funds from a tenant in a bankruptcy case.

Within specific time frames, a tenant must decide whether they want to assume a lease or reject a lease, i.e., whether they want to stay in possession or vacate, but will attempt to pay as little as possible to the Landlord. Early in the case, tenant companies are making decisions to limit Landlord’s rights to recover under these bankruptcy laws. As a result as soon as a Landlord realizes a bankruptcy has been filed; they are urged to immediately contact legal counsel so they can begin control of the bankruptcy process in their favor.

Regardless, there are options for the Landlord to consider if the tenant decides to reject a lease or otherwise decide not to continue with the lease obligation. The landlord must file claims with the Court within certain mandated deadline. These claims may have at least three components; 1) the pre-petition claim amount, 2) the rejection claim amount, and 3) the administrative claim amount.  The calculation of these claims is driven by a complex set of bankruptcy rules and laws.

Similarly, if the tenant decides to assume the lease and thus stay in possession, a Landlord must comply with court deadlines to assure the Landlord is paid in full. In some regard the terms of the lease control but these terms must be construed with the applicable bankruptcy provisions. In addition, claims filed with the court must meet certain mandated bankruptcy code requirements to be approved by the court. A Landlord who does not act promptly may miss the opportunity to be paid in full.

This is an introduction to the issues a Landlord must consider to maximize recovery for their equity interest holders and investors. Future articles will follow with more details on the processes available.

Iurillo Law Group P.A. routinely represents Landlords in bankruptcy and insolvency proceedings. Therefore, Iurillo Law Group P.A. is positioned to answer your questions swiftly, to give you legal advice that also considers sound business decisions and to act quickly to meet court deadlines.

The contents of this blog and website are for informational purposes only and do not constitute legal advice.  Use of and access to this blog and website do not create an attorney-client relationship between the user and Iurillo Law Group, P.A.