The normal course of events changes when a tenant chooses to assert its rights under the Bankruptcy Code. In this situation, commercial landlords must carefully proceed as they deal with a multitude of issues when tenants file for reorganization under the Bankruptcy Code.
Federal bankruptcy law uses special rules to treat the situation where a commercial landlord is faced with a bankruptcy filing by a tenant. Bankruptcy law does not treat the filing of a bankruptcy petition by a tenant as a default entitling the landlord to terminate the lease agreement, despite the fact that the lease may contain an ipso facto clause providing such. Ipso facto clauses are void under Title 11 (the “Bankruptcy Code”). Thus, a commercial landlord must maximize its available remedies to minimize its losses.
The Bankruptcy Code (Title 11) contains many special, mandatory provisions that deal with commercial leases. Because certain issues arise depending on whether or not the tenant decides to assert its rights under the Bankruptcy Code, commercial landlords must carefully proceed when dealing with tenant-debtors. Commercial landlords thus deal with a plethora of issues when their tenants file for protection under the federal bankruptcy laws.
In PGA West Residential Association, Inc. v. Hulven International, Inc., 2017 S.O.S. 4035, plaintiffs alleged that a property owner attempted to insulate the equity in his property from creditors by fraudulent means, specifically, naming a sham corporation as the beneficiary on a deed of trust. The lawsuit was filed more than seven years after the alleged fraudulent activity.
The California Court of Appeals has held that a general release is ineffective to release usury claims. In Hardwick v. Wilcox, 11 Cal.App.5th 975 (2017), James Hardwick, received several loans at an interest rate of approximately 12% from Albert Wilcox. The latter was unlicensed as a lender and had no other exemption from usury under California law.
In a recent case, the 9th Circuit allowed the sale of property ‘free and clear’ of tenant interests. The case decided in July, In re Spanish Peaks Holdings II, LLC, ruled that despite the tenant protections contained in § 365(h)of the Bankruptcy Code, a bankruptcy estate may sell property free and clear of leases. The court also ruled that tenants are entitled to “adequate protection” of their interests, as long as that they provide sufficient evidence and timely request it.
The qualitative assessment of a firm’s capital plan is based on an absolute assessment of an individual firm’s capital planning practices relative to the Federal Reserve’s expectations as set forth in SR letter 15-18 rather than comparative rankings. Thus, a low ranking is not, in and of itself, a reason for the Fed to object to a capital plan.
Firms submit capital plans to the Federal Reserve each year in April. These capital plans include detailed descriptions of the firms’ capital planning practices. These include descriptions of their policies governing capital actions and their internal procedures for assessing capital adequacy. Federal Reserve experts expend three months conducting an analysis of these policies and processes. Information gathered by related supervisory work conducted through the year also contributes to the analyses.
Annually in April, firms submit capital plans to the Federal Reserve. These capital plans include detailed descriptions of the firms’ capital planning practices, including descriptions of their policies governing capital actions and their internal procedures for assessing capital adequacy. Federal Reserve experts expend three months conducting an analysis of these policies and processes. Information gathered by related supervisory work conducted through the year also contributes to the analysis.
Receiving a notice of bankruptcy is typically a stressful experience for a commercial landlord, especially when it is from a tenant rather than a party connected by some other business relationship. Landlords often assume that they will be forced to keep a bankrupt tenant for the greater remainder of the lease or some other extended period of time with no rent payments and no remedies.