Presenting a live 90 ‐ minute webinar with interactive Q&A Tenant Bankruptcy: Assumption and p y p Rejection of Commercial Leases Strategies for Landlords and Tenants to Protect Their Interests Under the Bankruptcy Code THURS DAY, MARCH 10, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Jason B. Binford, Attorney, Kane Russell Coleman & Logan , Dallas Gary M. Kaplan, S pecial Counsel, Farella Braun + Martel , S an Francisco Robert L. LeHane, Partner, Kelley Drye , New Y ork The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
Conference Materials If you have not printed the conference materials for this program, please complete the following steps: • Click on the + sign next to “ Conference Materials” in the middle of the left- hand column on your screen hand column on your screen. • Click on the tab labeled “ Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon.
Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: • Close the notification box • In the chat box, type (1) your company name and (2) the number of attendees at your location • Click the blue icon beside the box to send
Tips for Optimal Quality S S ound Quality d Q lit If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial 1-866-869-6667 and enter your PIN when prompted Otherwise please send us a chat or e mail when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Qualit y To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again press the F11 key again.
March 3, 2011 Tenant Bankruptcy: Assumption and Rejection e a t a uptcy ssu pt o a d eject o of Commercial Leases GARY M. KAPLAN, Farella Braun + Martel LLP
Bankruptcy Lease Basics • Bankruptcy Code §365 governs debtor’s assumption, rejection and assignment of unexpired commercial leases unexpired commercial leases • Assumption = Ratification of lease • Rejection = Anticipatory repudiation of lease R j ti A ti i t di ti f l • §365(d)(3) addresses tenant’s obligations under lease pending assumption rejection or under lease pending assumption, rejection or assignment 6
Lease Obligations Pending Assumption/Rejection • §365(d)(3) requires debtor-tenant to timely perform its postpetition ( i e perform its postpetition ( i.e. , post-bankruptcy) post-bankruptcy) obligations until it is assumed, rejected or assigned • Court may extend time for performing obligations arising within 60 days after bankruptcy filing, but i i ithi 60 d ft b k t fili b t not past 60 th day • Unpaid obligations give rise to administrative claim p g g with priority over general unsecured claims • Claim generally = amount provided in lease, regardless of actual value to bankruptcy estate regardless of actual value to bankruptcy estate. • E.g. , In re Cukierman , 265 F.3d 846 (9th Cir. 2001) 7
Administrative Expense Claim for Unpaid Postpetition Lease Obligations • Courts split regarding debtor’s obligation to immediately pay post-petition lease obligations under § 365(d)(3) if debtor post petition lease obligations under § 365(d)(3) if debtor lacks funds to pay all other administrative expenses • Most courts: No “super-priority”; postpetition lease obligations should not be paid unless sufficient funds to obligations should not be paid unless sufficient funds to fully pay all administrative claims. • Many courts: § 365(d)(3) obligations = super-priority administrati e claim m st be timel paid regardless of administrative claim; must be timely paid regardless of debtor’s ability to pay other administrative claims • Other courts: Current payment of § 365(d)(3) obligations required, subject to later disgorgement if insufficient funds to pay all administrative claims; pro rata distribution 8
Scope of Debtor’s Postpetition Lease Obligations under § 365(d)(3) • § 365(d)(3) generally encompasses obligations for taxes, insurance CAM utilities repairs clean-up costs late insurance, CAM, utilities, repairs, clean up costs, late charges, interest and other monetary obligations. • E.g., In re Cukierman, 265 F.3d 846 (9th Cir. 2001); In re National Refractors & Minerals Corp. , 297 B.R. In re National Refractors & Minerals Corp 297 B R 614 (Bankr. N.D. Cal. 2003); In re Far West Corp. of Shasta County , 120 B.R. 551 (Bankr. E.D. Cal. 1991) 1991) • Some courts - failure to comply with obligation to restore premises upon lease rejection does not give rise to administrative priority claim. E .g., In re TreeSource Industries, Inc. 363 F.3d. 994 (9th Cir. 2004) 9
Obligation to pay landlord attorney fees • Most courts: Debtor required to pay landlord’s postpetition attorney’s fees in enforcing § 365(d)(3) postpetition attorney s fees in enforcing § 365(d)(3) obligations (if allowed under lease), but some courts hold to contrary • In re Midway Airlines Group , 406 F.3d 229 (4th Cir. 2005); ( §3 65(d)(3) obligations include attorneys’ fees in enforcing lease) fees in enforcing lease) • In re Pacific Arts Publishing, Inc. , 198 B.R. 319 (Bankr. C.D. Cal. 1996) (attorneys’ fees incurred in enforcing lease are not included in § 365(d)(3) § obligations) 10
Exclusions to § 365(d)(3) Lease Obligation Performance • Certain lease obligations (listed in § 365(b)(2)) excluded from § 365(d)(3) performance obligations § 365(d)(3) l d d f f bli ti • Penalty rates, provisions arising from debtor’s failure to perform non-monetary obligations p y g • “I pso facto ” provisions (imposing obligations or penalties based on filing of bankruptcy case, financial condition of debtor or appointment of financial condition of debtor or appointment of bankruptcy trustee or custodian prior to bankruptcy) 11
Stub Rent and Proration • Courts split on debtor’s § 365(d)(3) obligations where portion of obligation falling due postpetition accrued prepetition of obligation falling due postpetition accrued prepetition • Many courts use billing date approach: Obligations due postpetition including amounts accrued prepetition must be paid under § 365(d)(3) without proration; debtor need not pay paid under § 365(d)(3) without proration; debtor need not pay rent for postpetition occupancy if payment due prepetition. • E .g. , In re Montgomery Ward Holding Corp. , 268 F.3d 205 (3d Cir. 2001); In re Koenig Sporting F 3d 205 (3d Ci 2001) I K i S ti Goods, Inc. , 203 F.3d 986 (6th Cir. 2000); Ha-Lo Industries, Inc. v.. Centerpoint Properties Trust, 342 F.3d 794 (7 th Cir. 2003); In re Burival, 613 F.3d 810 h (8th Cir. 2010) 12
Stub Rent and Proration • Substantial number of courts: Debtor must pay prorated amount where obligations due postpetition prorated amount where obligations due postpetition include amounts accrued prepetition • E .g. , In re Handy Andy Home Improvement Centers, Inc Inc. , 144 F.3d 1125 (7th Cir. 1998); In re Furr s 144 F 3d 1125 (7th Cir 1998); In re Furr’s Supermarkets, Inc., 283 B.R. 60 (B.A.P. 10th Cir. 2002) • S Some courts require prorated payment of lease t i t d t f l obligations accruing postpetition even where payment due prepetition. (E.g., In re Victory M Markets, Inc. , 196 B.R. 6 (N.D.N.Y. 1996)) k t I 196 B R 6 (N D N Y 1996)) 13
Stub Rent and Proration • Alternatively, courts require prorated rent payment for postpetition period where payment due for postpetition period where payment due prepetition under Bankruptcy Code §503(b)(1) based on actual value of property to bankruptcy estate (E.g., In re Goody’s Family Clothing, Inc., 610 F.3d 812 (3rd Cir. 2010), cert. den den ., ___ U.S. ___, 131 S.Ct. 662, 178 L.Ed.2d U S 131 S Ct 662 178 L Ed 2d 483 (2010)) 14
Related Publications By Gary M. Kaplan • “Lessor Update: What Commercial Landlords Need to Understand About Bankruptcy” (The Americas Restructuring and Insolvency Guide g y 2008/2009; Cal. State Bar Business Law News, Issue No. 1, 2009) • “B “Bankruptcy Primer For Commercial k t P i F C i l Landlords” (International Legal News, 2009; Cal. Real Estate Journal, 2009) , ) 15
Contact Information Gary Kaplan Special Counsel, and Co-Chair of Restructuring, Insolvency & Creditors Rights Group F Farella Braun + Martel LLP ll B M t l LLP 235 Montgomery Street, 17 th Floor S San Francisco, CA 94104 F i CA 94104 gkaplan@fbm.com 415 954 4940 415.954.4940 16
by Robert L. LeHane March 10, 2011 Deadlines to Assume or Reject and Calculating Rejection Damages Commercial Leases in Bankruptcy
Recommend
More recommend
