The Intersection of Commercial Real Estate and Bankruptcy Law

Introduction:

The dynamic intersection of commercial real estate and bankruptcy law has become increasingly complex, demanding a nuanced understanding of lease and contract dynamics. In the wake of high-profile bankruptcy cases affecting New Jersey and beyond, it is crucial for both landlords and tenants to grasp their rights and the implications of their counterparties' bankruptcy filings. Renowned experts Kenneth A. Rosen and Philip J. Gross provide insights into recent legal decisions and offer guidance on protecting rights in this intricate landscape.

Understanding Tenant’s Section 365(h) Rights:

In cases where a debtor-lessor files for Chapter 11 bankruptcy, the tenant-lessee faces a critical decision under Section 365(h) of the Bankruptcy Code. Recent legal developments have clarified the application of these rights even in scenarios involving the sale of real property under Section 363. While earlier precedents suggested a sale order would trump tenant protections, recent decisions, such as Dishi & Sons v. Bay Condos LLC and In re Revel AC, Inc., underscore the continued safeguarding of a tenant's rights to possession, use, and enjoyment post-sale.

Lease Agreements with Foreign Entities:

The globalized economy brings forth new challenges, especially with the rise of Chapter 15 international bankruptcy filings. The recent Hanjin Shipping case exemplifies the need for parties to understand the implications of dealing with foreign entities. Unlike Chapter 11, Chapter 15 doesn't incorporate Section 365, potentially leaving lease counterparties vulnerable to the laws of foreign jurisdictions. Landlords and tenants should carefully consider the jurisdiction of their lease counterparties and, when possible, contract with U.S.-incorporated entities to mitigate risks.

Deadline Pressures and Going-Out-of-Business Sales:

The Bankruptcy Code imposes time constraints on debtors to assume or reject nonresidential real property leases. The 210-day limit has created challenges for retailers, especially those opting for going-out-of-business (GOB) sales. Landlords must act swiftly to protect their rights when a debtor conducts GOB sales on their property. Recent cases, including Dots, LLC and Filene’s Basement, highlight the importance of vigilance in preserving the rights afforded by the Bankruptcy Code.

Conclusion:

The evolving landscape at the intersection of commercial real estate and bankruptcy law demands proactive strategies from landlords and tenants alike. Recent legal precedents underscore the importance of staying informed, especially in the context of international dealings and time-sensitive decisions. As the legal terrain continues to shift, a comprehensive understanding of rights, obligations, and potential pitfalls is essential for all parties involved in commercial lease agreements.