Bankruptcy in commercial leases

For owners of commercial retail property it can be frustrating when tenants abruptly close up shop and file for bankruptcy. Many times these situations result in months of lost rental income for the property owner. If the tenant files a strait bankruptcy such as Chapter 7, a rental space cannot be leased to a new owner until a bankruptcy discharge is issued. This can take three to four months in a simple bankruptcy. If additional issues or objections arise, the waiting period can be even longer. When a tenant files a reorganization plan such as Chapter 11 bankruptcy, and chooses to assume a lease, it can still take months before plan payments begin disbursement and monthly rents begin flowing again.

As a commercial property owner, this is one of the reasons to ensure that you find and retain the best tenants possible. In addition, upon receiving notification that a tenant has filed bankruptcy, it is in the property owner’s best interest to retain a knowledgeable attorney early in the process. He or she can assist and offer advice in the assumption or rejection of leases, filing a Motion to Terminate an Automatic Stay, or negotiating new contract terms.

In 2017, retail bankruptcies were on the rise. They are expected to increase throughout 2018. If you are a commercial property owner, know your rights when it comes to collection activities against bankrupt tenants. It is all too easy to violate an automatic stay unknowingly. Bankruptcy is a federal matter with a completely different set of rules and regulations than matters in state court. Protect yourself, your property, and your business by consulting with an attorney prior to making any contact with a bankrupt tenant.

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