Commercial landlords have unique protections in bankruptcy, but can lose these rights if they do not assert them. When a commercial tenant files bankruptcy under Chapter 11, the landlord must carefully monitor filings and proceedings from the first day to be sure that the debtor properly budgets for payment of rent, and does not otherwise seek to modify the landlord’s rights and remedies. The fundamental rule of bankruptcy is that creditors have certain rights unless they give them away. The Bankruptcy Code (i.e., Title 11 of the U.S. Code) won’t protect a sleepy creditor who fails to object to motions, sale orders, a plan, or a confirmation order that strikes a creditor’s claim, modifies the lease or otherwise eliminates the landlord’s protections. Consequently, commercial landlord creditors must carefully monitor bankruptcy proceedings to enforce their rights and maximize their recovery.
- 365 – Assumption, rejection and the obligation to pay rent commencing 60 days after the petition date
Section 365 of the Bankruptcy Code is the primary statute addressing unexpired leases. The same Code section also deals with “executory contracts.” Among its virtues, § 365 is long and confusing; has different rules for different chapters and for different types of leases; is replete with terms defined elsewhere and cross-references to multiple other statutes; and is subject to alteration by a number of other statutes that aren’t referenced. It’s a challenging statute. Continue Reading