With an escalating number of brick and mortar retailer filing bankruptcy, landlords are increasingly finding themselves in an untenable situation with no control over the lease on their real estate property with the bankrupt retailer. When faced with such a situation, it is recommended to seek advice from an experienced bankruptcy lawyer who can help understand the process and find out the impact bankruptcy proceedings are going to have on lease.
Here, let us discuss one of the aspects of effects on lease in case of bankruptcy- Assumption or Rejection.
The very first question staring the landlord hoping for quick answers is whether the tenant who has gone bankrupt shall or shall not remain in the property. It is quite obvious for a landlord to expect the tenant to move out immediately, but this situation can give rise to several scenarios. Some of these scenarios are-
- One of the most common scenarios would be lease expiring as laws or terms because of an uncured default and this happens before the bankruptcy case has been filed by the tenant. In this situation, lease is terminated, and the tenant cannot rely on bankruptcy rights. The only way landlord can evict the tenant is by getting an automatic stay from the bankruptcy court by filing a motion.
- Another scenario could be the least still current and tenants who wants to stay. As per a bankruptcy attorney, the tenant must give an adequate assurance to the landlord about his future performance as per lease rules. He also needs to obtain an approval from the bankruptcy court to assume the lease within two months after filing of the bankruptcy case.
- There may also be a situation when the tenants wish to stay but the lease is in default. In such a case, assuming reorganizing by the tenant, he has to take care of curing the default, make timely payments, and assure the landlord of future lease performance. Again, he needs to obtain an approval from the bankruptcy court to assume the lease within two months after filing of the bankruptcy case.
- One more scenario is the involvement of Chapter 7 bankruptcy trustee. In this case, the rights of the tenant and trustee is same as the above two scenarios. Often, the trustee is reluctant to run the business of the tenant for long. However, if the lease value is below par market lease, the trustee will assume the lease after filing a motion and giving an opportunity to the landlord for a hearing. He can assign the lease to a third-party in exchange for payment to the bankruptcy estate of the tenant.
It is very important to have proper knowledge of bankruptcy law to handle the situation and not everyone can handle the situation. It is here, bankruptcy attorneys play a vital role guiding people how to handle impact of bankruptcy on their lease.
About Us:
Legal Rights Advocates, PLLC is a law firm that specializes in helping clients who are facing bankruptcy and contemplating filing. Our team of attorneys, over the years, has helped countless clients gain freedom from the worries and stress resulting from events following a decision to file for bankruptcy.
If you are interested in learning more about filing for bankruptcy in Massachusetts and the options and exemptions available, call us at (855) 254-7841 for immediate assistance.
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