Impact of the New Bankruptcy Law on Commercial Landlords
By: JOSEPH G. SPRINGER
June 2005
On April 20, 2005, President Bush signed "The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005." This statute applies to bankruptcy cases filed on or after October 17, 2005, and contains three important protections for commercial landlords.
- New Deadline for Debtors to Assume or Reject Leases. Under the old law, bankruptcy courts had the discretion to extend the debtor's time to either assume or reject leases for months or even years. The new statute contains a firm deadline of 210 days after the bankruptcy filing, which can only be extended by the bankruptcy court with a landlord's consent.
- New Enforcement of Anti-Assignment Provisions in Leases. Prior to the new law, many bankruptcy courts found that a purchaser or assignee of the bankrupt tenant's lease was not subject to use restrictions or other anti-assignment provisions. For example, while the lease limited use of the property to a home improvement center, the purchaser or assignee could use the property for any purpose, such as a grocery store, even if it conflicted with exclusive-use clauses given by the landlord to other tenants. The new law expressly provides that any assumption or assignment of a lease from the bankrupt tenant is subject to certain restrictions contained in the original lease, including radius, use, and exclusivity provisions.
- Landlord's Right to Recover Damages if the Tenant Goes Dark. The old law was unclear on whether a lease could be assumed if the bankrupt tenant had non-curable non-monetary defaults, such as ceasing operations where the lease required continuous operations. Under the new law, operations must be resumed in order for the lease to be assumed or assigned. Additionally, the landlord has a right to recover money damages sustained due to the tenant breaching that provision.