BANKRUPTCY RAMIFICATIONS - Understanding Commercial Leases - Part 16

This is Part 16 of a multi-part series on Understanding Commercial Leases.

BANKRUPTCY RAMIFICATIONS

AUTOMATIC STAY - When a tenant files for bankruptcy, the automatic stay provisions “kick in” and Landlord is prohibited from taking any action to evict the Tenant or collect past due rents.

ACCEPTING OR REJECTING THE LEASE

• Tenants who have filed for reorganization (Chapter 11) have the right to accept or reject the lease. Rejection relieves them of  responsibility for any future obligations under the lease.
• If Tenant does not accept within a certain period of time, lease is automatically rejected.

LANDLORD'S INTEREST

• Meet with the bankruptcy court, usually at the first creditor’s meeting, to request that court “lift” the automatic stay, so that Landlord can evict Tenant, collect past due rents or  negotiate with Tenant to vacate the premises.

TENANT'S INTEREST

• If Tenant plans to attempt to continue doing business, they need to decide whether or not they want to accept or reject the lease.
• Rejecting the lease relieves Tenant of future liability under the lease.
• Negotiate repayment plan for past due debt or debt forgiveness to avoid liability for amounts due under lease.
• Negotiate lower rents