When a commercial tenant files for Chapter 11 bankruptcy, the commercial landlord can find itself in a difficult position. The tenant may owe unpaid rent, and the landlord will likely be concerned about getting that unpaid rent and any future rent while the tenant remains in the space. It is important for a commercial landlord to work with a South Carolina creditors’ rights lawyer to understand their rights. In the meantime, we have a list of three things a commercial landlord should know when a tenant files for Chapter 11 bankruptcy.
1. Tenant Has Three Options With Regard to the Lease: Assume It, Assign It, or Reject It
When a commercial tenant files for Chapter 11 bankruptcy, that commercial tenant has three options with regard to the lease:
● Assume the lease, which involves performing all of the tenant’s obligations under that lease, including paying rent;
● Assign the lease to a third party, which would involve a third party taking over the obligations under the lease; or
● Reject the lease, which requires the tenant to leave the commercial space.
Under the U.S. Bankruptcy Code, a commercial tenant has 120 days after filing for bankruptcy to decide on one of the above options. In some cases, a tenant can get a 90-day extension on that 12-day limit.
2. Automatic Stay Applies in a Chapter 11 Bankruptcy Case Involving a Commercial Landlord and Tenant
When a commercial tenant files for bankruptcy, it is extremely important for the commercial landlord to know that the automatic stay applies to the case. As such, a commercial tenant cannot initiate any legal proceedings against the tenant in an attempt to collect unpaid rent.
3. Shopping Center Leases Have Special Rules for Chapter 11 Bankruptcy
Commercial landlords should know that the U.S. Bankruptcy Code has a special section concerning shopping center leases when a commercial tenant files for Chapter 11 bankruptcy. Under § 265(b)(3), “a lease of real property in a shopping center” has particular protections if the tenant plans to assume the lease or to assign it to a third party. What are those special rules or protections?
With other commercial property—that is not in a shopping center—a commercial landlord does not have much say over what type of business the tenant might assign the lease to. However, if the commercial landlord owns a shopping center and the tenant had been renting space in a shopping center, then the mix of tenants in the structure, and the balance of types of businesses in the shopping center, must be taken into account when assigning the lease to a third party.
Contact a Creditors’ Rights Attorney in South Carolina for Assistance
If you own commercial property and one of your commercial tenants recently filed for bankruptcy, it is important to seek advice from an experienced creditors’ rights lawyer in South Carolina. An advocate at our firm can speak with you today about the case and about your options. Contact Crawford & von Keller, LLC to learn more about how we assist creditors in South Carolina.