Property Owners’ Rights When Tenants File for Bankruptcy
Posted on September 22, 2020
In the current economic climate, property owners hoping to receive monthly rental payments should not be surprised if they instead receive legal notice of a commercial tenant’s filing for bankruptcy. When this happens, landlords can take proactive measures to protect their interests and minimize their exposure to risks.
A bankruptcy filing generally does not constitute a tenant’s default or grounds for eviction, nor does it terminate the landlord-tenant relationship or the landlord’s ability to receive rental income. Rather, bankruptcies typically impose an “automatic stay” that prohibits landlords from pursuing collections or eviction action against the filing tenants. However, depending on the timing of the filing, the tenant’s payment history, and its intent to reorganize and/or continue occupying the rental space, landlords may have an opportunity for to receive relief.
For example, if a lease is in default prior a tenant’s bankruptcy filing, the landlord may file a motion to receive relief from the automatic stay and evict the tenant or enter into a new lease with new terms that are beneficial to the landlord over the life of the rental agreement. After the tenant files for bankruptcy, it must continue to carry out its lease obligations, including the payment of rent, and either assume or reject the lease. Assuming a lease requires tenants to remedy any pre- or post-filing defaults and provide financial assurances it will perform under the lease going forward. If a tenant rejects a lease, the landlord may have a claim for damages flowing from that rejection, subject to statutory caps.
Navigating successfully through these unique challenges related to owning and investing in commercial property requires the guidance of experienced real estate professionals with a broad range of legal and tax resources.
With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.