In re Provo Gateway, LLC (Bankr. D. Utah) Case no. 11-31259
Introduction
Introduction
In Green Tree Serv., LLC v. DBSI Landmark Towers LLC,1 a case that is significant for landlords and leasing attorneys, the Eighth Circuit recently held that a subtenant of commercial office space was permitted to vacate its leased premises after the rejection of the master lease and sublease by the debtor-sublandlord, notwithstanding an attornment provision in the sublease requiring the subtenant to attorn2 to the landlord when the landlord either terminates the master lease or otherwise succeeds to the interest of the sublandlord under the master lease.
October 17, 2006 marked the one year anniversary of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the "Reform Act"). The Reform Act has provided some much needed relief to commercial landlords, and the reported decisions of bankruptcy courts during the first year of the Reform Act confirm the effectiveness of the new landlord-friendly provisions.
There are many tenants that are, shall we say, “problem children.” They pay late, open late, breach, junk up your strip or building, threaten, the works. Sometimes, the landlord finds it easier just to reach a lease termination agreement with such a tenant, with the parties walking away with a mutual release. If the lease is below market, or the landlord is really motivated to move this tenant along, the landlord even provides some “keys money” to terminate the lease.
Landlords contemplating terminating a lease with a distressed tenant in advance of a possible tenant bankruptcy will want to consider carefully a recent decision from the Seventh Circuit. The decision, In re Great Lakes Quick Lube LP, reversed and remanded a bankruptcy court decision in favor of a landlord.
Landlords dealing with troubled tenants often enter into termination agreements that dictate terms for the consensual terminations of unexpired leases. Among other benefits, such termination agreements provide certainty and allow landlords to move on from unprofitable tenant relationships. Additionally, by entering into termination agreements, troubled tenants can be prevented from later assuming or assigning such terminated leases to an undesirable third-party if the tenant later files for bankruptcy.
The Seventh Circuit Court of Appeals recently handed down a decision with significant implications for landlords contemplating lease termination agreements with distressed tenants. Ruling on a direct appeal in the chapter 11 case In re Great Lakes Quick Lube LP, the court held that a lease termination agreement between a landlord and a financially distressed tenant can be voided as either a fraudulent conveyance or a preferential transfer in the tenant’s subsequent bankruptcy case.
The Seventh Circuit Court of Appeals recently handed down a decision with significant implications for landlords contemplating lease termination agreements with distressed tenants. Ruling on a direct appeal in the chapter 11 case In re Great Lakes Quick Lube LP, the court held that a lease termination agreement between a landlord and a financially distressed tenant can be voided as either a fraudulent conveyance or a preferential transfer in the tenant’s subsequent bankruptcy case.