As the economy continues to face challenges and the threat of bankruptcy becomes more prevalent among businesses, landlords must be more vigilant in protecting their interests in commercial leases. One area of particular concern is leases that fall under Section 467 of the Internal Revenue Code (“Section 467 Leases”).
In a departure from prior precedent in the United States Bankruptcy Court for the Southern District of New York (SDNY), a recent opinion by Judge Michael E. Wiles in In re Cortlandt Liquidating LLC,[1] effectively lowered the Bankruptcy Code section 502(b)(6) cap on rejection damages that a commercial real estate landlord may claim, by holding that the cap should be calculated using the “Time Approach,” rather than the “Rent Approach.”
Calculation of Lease Rejection Damages
The March 2023 banking crisis has been an unexpected “stress test” for dealing with liquidity issues.
When state regulators closed Silicon Valley Bank this past Friday, many startups understandably faced severe liquidity issues triggered by the sudden and unexpected loss of access to their deposits.
On January 4, 2023, Judge Glenn of the United States Bankruptcy Court for the Southern District of New York issued a much-awaited decision in the Celsius Network LLC (along with its affiliated debtors, “Celsius” or the “Debtors”) chapter 11 cases relating to the ownership of crypto assets deposited by customers in the Celsius “Earn” rewards program accounts.
Last month, Judge Caproni of the Southern District of New York issued a ruling stating that if a commercial lease does not require a landlord to hold a security deposit in trust and if there is no state statute generally requiring landlords to do so, the security deposit may not be recoverable by the tenant when the landlord files for bankruptcy. See 10FN Inc. v. Cerberus Business Finance LLC, 21-5996 (S.D.N.Y. Oct. 18, 2022).
Over the span of two weeks in July 2022, two of the largest retail-facing cryptocurrency platforms, Celsius and Voyager, filed for chapter 11 bankruptcy protection.
In New York, it is a standard practice to name all tenants residing in a building when foreclosing upon the property.