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.
Under § 365(d)(4) of the Bankruptcy Code, a debtor must assume or reject a lease within 120 days from the petition date, subject to one 90-day extension with court permission prior to the expiration of the 90-day period. All further extensions of this 210-day total period require the landlord’s prior written consent. Once a debtor rejects the lease, a landlord may file a claim for lease rejection damages for rent from the date that the bankruptcy case was filed through the lease termination date.
Specifically, a landlord may pursue claims under 11 U.S.C. §502(b)(6) for damages that result from the termination of the lease to the extent the claim exceeds the rent designated by the lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining lease term, following the earlier of the date of the filing of the bankruptcy petition and the date on which the landlord (lessor) repossessed or the tenant (lessee) surrendered the property, plus any unpaid rent due under such lease, without acceleration, on the earlier of these dates.
While this claim may include lost rent and other charges and costs incurred pursuant to the lease, federal bankruptcy law caps at the greater of one year of rent or 15% of the remaining term not to exceed three years. If the commercial property is leased to another party, the claim may be reduced to the landlord’s actual damages, subject to the federally-imposed cap.
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