Handling Your Commercial Tenant's Bankruptcy

The attorneys at Blake Law Firm frequently counsel commercial property owners and managers who are concerned about tenants facing financial distress or bankruptcy. The laws governing commercial tenant bankruptcy are complex and can significantly affect an owner's ability to collect rent, take possession of the premises, or enforce lease terms. Therefore, understanding the legal rights related to the commercial lease and premises is crucial when bankruptcy is filed or anticipated.  A few things that an owner/landlord will need to consider: 

1. Understanding Bankruptcy Types: Familiarize yourself with the types of bankruptcy a tenant might file, such as Chapter 7 (liquidation) or Chapter 11 (reorganization). Each type affects the lease differently.

2. Automatic Stay: Be aware that once a tenant files for bankruptcy, an automatic stay is in place. This prevents owners/landlords from taking actions like eviction,  collecting debts from the tenant or applying a security deposit without court approval.

3. Lease Assumption or Rejection: In a Chapter 11 proceeding, the tenant must decide whether to assume or reject the lease within 60 days. If assumed, they must continue paying rent and cure any defaults. If rejected, the lease is terminated, and the tenant must surrender the premises.

4. Proof of Claim: The owner/landlord should file a proof of claim with the bankruptcy court to recover unpaid rent or damages. This is crucial for being considered in the distribution of the tenant’s assets, if any, upon the completion of the bankruptcy proceeding.

5. Communication: Maintain open communication with the tenant and/or their legal representatives and the bankruptcy trustee. Understanding their intentions can help in planning the next steps and/or facilitate stipulations between the parties to avoid lengthy bankruptcy proceedings.

6. Legal Counsel: Engage with legal counsel experienced in representing commercial owners and landlords in tenant bankruptcy proceedings to navigate the complexities and protect the owner’s interests.

7. Mitigation of Losses: Consider strategies to mitigate losses, such as finding a new tenant if the lease is rejected. This can help minimize financial impact. 

8. Lease Provisions: Review the lease for clauses related to bankruptcy. Some leases include provisions that allow landlords to terminate the lease or require additional security in the event of bankruptcy.

9. Stay Informed: Keep updated on the bankruptcy proceedings and deadlines. This ensures timely actions and decisions. 

 By focusing on these areas, a commercial property owner or manager can effectively handle situations involving a bankrupt tenant, protecting the property’s financial and operational interests. We are available to answer your legal questions or concerns about your tenant’s potential bankruptcy and how best to protect the landlord/property owner’s interests. You can reach us by phone at (858) 232-1290 or email us at info@blakelawca.com.