Tenant Bankruptcies in Shopping Centers: Risks and Opportunities
Chain Store Age

Retail bankruptcy proceedings can significantly impact landlords and neighboring tenants, raising concerns about tenant mix disruption, GOB sales, and lease assignment. Understanding the legal framework and taking proactive measures can help protect the interests of all parties involved.

Landlord Considerations

1. Lease Termination: Bankruptcy clauses purporting to terminate a lease upon bankruptcy are unenforceable.

2. Lease Assumption or Rejection: The debtor must decide within 120 days (extendable to 210 days) whether to assume (affirm) or reject the lease.

3. Administrative Claim Status: Post-petition rent claims hold administrative priority. However, in failing cases, landlords should promptly seek court intervention to compel payment.

4. Lease Assignment: A prospective assignee must provide adequate assurance of performance. Landlords should oppose assignment if the new tenant lacks financial strength or intends to violate lease restrictions.

5. Exclusive Use Provisions: Shopping centers with exclusive use provisions can object to lease assignments that disrupt the tenant mix.

6. GOB Sale Monitoring: Landlords should monitor the bankruptcy case to prevent unauthorized augmentation of inventory during GOB sales.

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Neighboring Tenant Considerations

1. Exclusive Rights Protection: Tenants with exclusive rights to sell certain goods can object to GOB sales that violate these rights.

2. Lease Assignment Objections: Existing tenants can object to lease assignments that disrupt the tenant mix or violate their exclusive use rights.

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Proactive Measures for Landlords and Tenants

1. Monitor Bankruptcy Proceedings: Closely monitor the debtor's bankruptcy case to identify potential issues and take timely action.

2. Seek Legal Counsel: Consult with experienced bankruptcy attorneys to understand rights and options.

3. Communicate with the Debtor: Maintain open communication with the debtor to address concerns and negotiate favorable outcomes.

4. Understand the Timeframe: Retail debtors have limited time to reorganize, sell assets, or conduct GOB sales, creating opportunities for qualified buyers.

   
   
   
   

In conclusion, navigating the retail bankruptcy landscape requires vigilance, proactive measures, and a thorough understanding of legal rights. By following these guidelines, landlords and neighboring tenants can effectively protect their interests and minimize the adverse impacts of bankruptcy proceedings.