Both landlords and tenants are well served to begin discussing exclusives early in the lease negotiations.

The recent Great Recession and the wave of bankruptcy filings that accompanied it presented a number of challenges for landlords and tenants. Yet, as the economy has recovered, we still continue to see restaurant and retail chains turn to the bankruptcy court’s for relief. Over the past year, a number of restaurants and retailers filed bankruptcy petitions. For example, American Apparel, Radio Shack, Anna’s Linens and Hot Dog on a Stick have sought protection from the bankruptcy courts.

Your tenant files for bankruptcy-what’s your move? Debtors who are lessees under real property leases have certain rights regarding their lease under § 365 of the Bankruptcy Code. Essentially, the debtor has two options: 1) reject the lease or 2) assume the lease, provided that the debtor can cure any defaults existing under the lease. Additionally, the debtor may have the right to assume and assign the lease to a third party.

When a retail business becomes a debtor in bankruptcy, it often decides to trim its operations by closing some of its retail stores. This strategy inevitably leaves the debtor with unnecessary leases. Instead of simply rejecting the leases, retail debtors often assume the agreements and assign them to other entities. The assumption and assignment of the unnecessary leases may allow a debtor to avoid potentially significant rejection damage claims from landlords.

The Fourth Circuit, on June 15, 2007, affirmed the dismissal of a Chapter 11 reorganization petition filed by a tenant debtor in a commercial lease dispute. Maryland Port Administration v. Premier Automotive Services, Incorporated (In re Premier Automotive Services, Incorporated), ___ F.3d ___, 2007 WL 1721951 (4th Cir. 6/15/07).

Saddleback Valley Community Church v. El Toro Materials Company, Inc. 2007 U.S. App. LEXIS 22991 (October 1, 2007) Client Alert

In a decision that should provide comfort to landlords confronting insolvent tenants, the Ninth Circuit recently ruled that the Bankruptcy Code’s limitation on the amount of damages a landlord is entitled to recover upon termination of a lease does not limit the landlord’s right to recover damages which are not based upon the loss of future rental income.

The U.S. Court of Appeals for the Fourth Circuit has upheld the dismissal of a debtor’s chapter 11 petition filed two days before for the expiration of a holdover, at-will tenancy, finding that the debtor’s lack of good faith in filing the petition constituted cause for dismissal. Maryland Port Admin. v. Premier Auto. Svcs., Inc. (In re Premier Auto. Svcs., Inc.), 492 F.3d 274 (4th Cir. 2007).

The Bankruptcy Code limits the amount a landlord may recover from a bankrupt tenant for damages caused by the termination of a lease of real property. But what if the tenant trashes the landlord's property before turning over the premises? Does the damage limitation apply to the landlord's claim for the cost of cleaning up the mess?

The United States Supreme Court held that reckless violations of the Fair Credit Reporting Act (“FCRA”) constitute a willful failure to comply, subjecting violators to liability for actual damages, statutory penalties and potentially punitive damages. Safeco Ins. Co. of America v. Burr, 551 U.S. _____ (June 4, 2007).

Lease Payments. It is not uncommon for a retailer with financial problems to be past due on lease payments. Filing for bankruptcy often gives a debtor “breathing room” to evaluate its financial condition, including profitability (or not) of non-residential real-property leases. Depending on the applicable law, this “breathing room” may also free up some cash flow for the debtor.