by | Aug 3, 2023 | Business & Commercial Bankruptcy, Chapter 11 |

Does the Landlord have any claims against a Commercial tenant that files chapter 11 and rejects the lease? The answer is yes. When  a business that files a chapter 11, the tenant must decide whether they are going to assume the lease and be responsible for all payments under the lease as if there was no bankruptcy, or reject the lease which is basically a lawful termination of the lease. Often, businesses file a Chapter 11 with the intended goal of terminating a lease. This is especially true with large, multilocation businesses where the goal is to get out from under less profitable locations. So if a landlord is put in that position, what should they do?

If it is known by the landlord that the tenant desires to terminate the lease, one option is to try and rework the terms. If the lease is rejected anyway, the Landlord has a claim for the use and occupancy (basically rent) of the premises during the bankruptcy until the lease was rejected. The landlord can also file a claim for the damages it suffered as a result of the early lease termination. However, there are restrictions on the claim. The maximum claim that can be asserted is for the rent arrears at the time the bankruptcy was filed plus no more than 12 months of rent even if there is more than 12 months left on the lease. This entire claim is treated as a prepetition unsecured claim even though the 12 months future rent claim is for post-petition rent. While it does not generally make the Landlord whole, they can at least recoup some of the losses


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