Handling Tenant Bankruptcies

"It is a commercial landlord's nightmare: a retail tenant files for bankruptcy protection and, immediately, the 'automatic stay' goes into effect. According to 11 U.S.C. 362, the landlord cannot evict the tenant/debtor nor bring a suit for any rent that may be in arrears or for any other outstanding defaults under the lease. The bankruptcy law strips the landlord of many ancillary rights and protections, including the ability to veto an assignment of the lease to a third party. The tenant/debtor, however, cannot act with complete impunity: the bankruptcy law requires the tenant/debtor to remain current on post-petition rent payments under the supervision of the relevant bankruptcy court, and the tenant/debtor must seek judicial approval for taking many actions, often against vigorous argument from the landlord. In a chapter 11 restructuring, the tenant/debtor is equally likely to exercise a number of different options with regard to the lease, depending on the economics surrounding the particular lease.

Thyis article discusses the various options, rights and remedies that both landlord and tenant/debtor enjoy, and the complex interplay between the provisions of a commercial retail lease and the United States Bankruptcy Code, with an emphases on the chapter 11 restructuring of a retail tenant."