Key Commercial Real Estate Lease Issues in Chapter 11 Cases

The U.S. Bankruptcy Code provides a complex set of rules governing the rights and obligations of landlords and tenants upon the commencement of a Chapter 11 case.

While issues related to commercial real estate leases are increasingly common in Chapter 11 cases due to the uptick in filings by national retailers with significant leasehold interests, there remains a considerable lack of clarity regarding the interpretation of certain bankruptcy code provisions on commercial leases. Additionally, as a result of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) amendments1—which imposed more stringent statutory limitations on the time a debtor has to retain or reject its commercial leases—debtors have far less time to make key strategic decisions that will substantially impact their liquidity, their balance sheet, and their ultimate success as a Chapter 11 debtor.

The increase in retail filings, the statutory pressure to quickly resolve lease issues, and the presence of both interand intra-circuit splits on issues and sub-issues under the commercial lease provisions of the bankruptcy code have rendered commercial leases one of the most heavily analyzed aspects of a debtor/tenant’s Chapter 11 case. As a result of this increased focus on commercial leases, debtors devote significant resources— both pre- and post-petition—to formulating a business plan that will minimize their obligations. In large part, this analysis includes determining which jurisdiction offers the debtor the most favorable outcome with respect to its commercial lease portfolio. Reciprocally, this means that by the time a Chapter 11 case is filed, most debtors will have been working for months on a strategy aimed at minimizing landlord claims.

This article was originally published in the February 2019 issue of New Jersey Lawyer magazine, a publication of the New Jersey State Bar Association, and is reprinted here with permission.