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March | April | 2015 CCIM.com
sent, but any further extensions require the
landlord's consent. A landlord should monitor
this process and assert its rights if necessary.
A tenant may reject a lease by filing a
motion to relinquish possession on a speci-
f ed date. T e rejection constitutes a breach
of the lease, and the landlord can obtain
authority from the bankruptcy court to ter-
minate the lease at that time.
When a tenant rejects a lease, the Bank-
ruptcy Code imposes a cap on allowed
damages. T e landlord is entitled to a claim
equal to the greater of (1) one year's rent plus
additional rent due under the lease for items
such as common area maintenance, real
estate taxes, and insurance; or (2) 15 percent
of the remaining lease term, not to exceed
three years. In some instances, the landlord
may be entitled to its legal fees or costs for
repairing property damage.
In many cases, the recovery on this capped
claim will be just pennies on the dollar. How-
ever, for retail tenants with substantial assets
or that continue as a going concern following a
bankruptcy reorganization or sale, the recov-
ery can be substantial. A landlord must f le
a proof of claim by the established deadline.
A tenant may assume a lease, by curing
all existing monetary defaults and provid-
ing "adequate assurance of future perfor-
mance." T e tenant identif es a proposed
cure amount, but if this amount is incorrect,
the landlord should f le an objection stating
the correct amount. A landlord may also seek
f nancial information or additional security
to provide assurance of future performance.
Finally, bankruptcy law provides a retail
tenant with a statutory right to assume and
assign a lease to a third party. Although a
landlord may not be able to prevent the
assignment, it may be able to obtain an addi-
tional security deposit or guaranty from the
prospective new tenant.
In each step of the bankruptcy process, a
landlord may be required to assert its rights
through timely f lings in the bankruptcy
court or negotiations with the tenant's bank-
ruptcy counsel.
David Folds is a shareholder in the Washington,
D.C., offi ce of the law fi rm Baker, Donelson,
Bearman, Caldwell & Berkowitz PC. Contact
him at dfolds@bakerdonelson.com.
A retail tenant gains a series of statutory
protections and rights after it fi les
for bankruptcy.
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