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.
While subject to the automatic stay, landlords, particularly landlords of commercial property, have substantial rights under Title 11, aka the Bankruptcy Code, to protect their interests in leased property.
When receiving a notice of a bankruptcy case filing, a landlord should gather certain information that is crucial to fully establish a landlord’s rights in the event of a tenant’s bankruptcy filing. Thus, a landlord should collect the following:
- the identity of the true tenant;
- the identity of the debtor;
- whether the lease was terminated under its terms or state law prior to the filing of the bankruptcy petition;
- whether the lease is a consumer lease or a commercial lease;
- whether there were any pre-petition payment defaults pursuant to the lease terms;
- whether there are any non-monetary defaults pursuant to the lease terms;
- whether there are any monetary or non-monetary defaults arising post-petition pursuant to the lease terms;
- whether there are any co-obligors pursuant to the lease terms; and
- whether there are any guarantors pursuant to the lease terms.
A landlord must carefully identify the debtor in the applicable bankruptcy case to determine whether this party and the tenant of the lease are the same entity. For commercial leases, a bankruptcy petition filed by a guarantor, parent company or subsidiary of the actual tenant does not invoke the automatic stay and thus does not prevent a landlord from utilizing state-law remedies against a non-debtor tenant.
The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to email@example.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.