Over the next two years, billions of dollars in commercial real estate loans are expected to mature — loans that many property owners and landlords will not be able to pay off or refinance. As a result, a number of landlords that have purchased, built, renovated and/or refinanced their properties with short-term debt during the previous five years will find themselves in a precarious position. Market forces, combined with the tightening of credit markets, leave landlords holding over-leveraged property, unable to refinance their shortterm debt because of a lack of equity.

A recent decision by the U.S. District Court for the
Southern District of New York concluded that a landlord
who obtains a judgment of possession and warrant of
eviction prepetition, yet is stayed from executing on the
warrant due to the debtor’s bankruptcy filing, may not be
entitled to post-petition rent as an administrative expense.
In In re Association of Graphic Communications, Inc., No. 07-
10278 (Bankr. S.D.N.Y. July 13, 2010), the court decided
that, under New York law, the prepetition warrant of

Introduction

The minefield of surrenders and assignments

The past eighteen months have seen a marked increase in the use of the Company Voluntary Arrangement (“CVA”) by retailers to reduce their lease liabilities and win the release of onerous parent company guarantees, with several high street names going through the process. Although this practice received cautious support from landlords, real concern continues to be voiced over the practice of “guarantee stripping”.

In the event of a tenant becoming insolvent, it is clearly important for a landlord to know where rent payable ranks in administration. A recent landmark decision handed down by the High Court strengthens the position of landlords by deciding that rent can now be more widely payable as an expense of the administrator.

Background

Simply, if rent is ranked as an expense of the administration1 then it is almost always discharged in full as a mandatory expense of the administrator, rather than being placed with lower priority creditors.

In a blow to administrators that will surely impact on the timings of any administration, most particularly those involving a large property portfolio, HHJ Purle, sitting in the High Court, has handed down a decision that will have ramifications potentially as serious as those of Re Trident Fashions for administrators in considering how long to remain in office, or indeed whether to accept an appointment at all.

This Act received Royal Assent in July 2007 but no date for implementation has been published yet.

In addition to the provisions contained in this Act aimed at improving the working of the tribunals system and increasing judicial diversity, are several sections that will be of interest to financiers and insolvency professionals: 

In a decision that will have important repercussions for creditors with the benefit of guarantees, the High Court this week has held that a company in financial difficulties may not propose a voluntary arrangement which is unfairly prejudicial on its terms to certain creditors.

Re Powerhouse

Do a lessee’s possessory interests in real property survive a “free and clear” sale of the property under section 363 of the Bankruptcy Code? In a recent decision, the Ninth Circuit Court of Appeals said “no,” holding that section 365(h) did not protect the interest of the lessee in the context of a section 363 sale when there had been no prior formal rejection of the lease under section 365.