Many commercial landlords are increasingly alarmed that COVID-19 may cause a surge in tenant bankruptcies or restructurings. We outline below the major issues for landlords arising from tenant defaults and insolvencies and suggest best practices to minimize losses.

Selected deadlines and dates related to COVID-19 laws, regulations and subsidies in the context of the pandemic.

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Part 2: Amendments Affecting Mortgage Lenders and Landlords

As discussed in a previous post, the Consolidated Appropriations Act of 2021 (the “Act”), which was enacted on December 27, 2020 in response to the economic distress caused by the COVID-19 pandemic, amended numerous provisions of the Bankruptcy Code. This post discusses amendments specifically affecting landlords.

On December 27, 2020, the Consolidated Appropriation Act of 2021 (the “CAA”) was enacted to provide additional coronavirus stimulus and relief for businesses challenged by the ongoing COVID-19 Pandemic. In doing so, the CAA includes several targeted, but temporary, changes to the Bankruptcy Code (the “Code”) designed to provide certain debtors with greater flexibility with respect to their leases (which may negatively affect landlords) while ensuring that creditors are not penalized under the preference law for renegotiating their lease terms (which should benefit landlords).

Apperley Investments Limited & Others v Monsoon Accessorize Limited [2020] IEHC 523

The Commercial Court has refused to apply the provisions of a Company Voluntary Arrangement (“CVA”), negotiated pursuant to the Insolvency Act 1986 in the UK, to Irish landlords as it would be “manifestly contrary to the public policy of the State”.

These proceedings were taken by Irish landlords over properties in Dublin and Cork leased to the fashion retailer Monsoon.

On December 27, 2020, the Consolidated Appropriations Act, 2021 became law. In addition to funding the government and providing coronavirus relief, the Act contains several intriguing amendments to the Bankruptcy Code. The changes discussed below are intended to make restructuring under subchapter V of chapter 11 more attractive for small businesses.

Rent Abatement for Small Business Tenants

CVAs remain the restructuring tool of choice for businesses with multi-let properties. Since the start of the first UK lockdown, there has been a marked increase in the number of CVAs in the hospitality and retail sectors. Whilst vaccines are now being dispensed, the economic ramifications of the pandemic will persist for some time to come and as a result we expect to see many more CVAs being proposed, particularly in these sectors. The introduction of R3's Standard Form COVID-19 CVA Proposal could lead to an increase in the use of CVAs in the SME market too.

Prior to December 23, 2020, it had been unclear whether a court had the jurisdiction to grant an order assigning a contract without counterparty consent, on application by a court-appointed receiver (a “Receiver”).

In a recent decision, the Court of Appeals for the Sixth Circuit held that the election of a tenant, under Section 365(h) of the Bankruptcy Code, to remain in possession of real property governed by a rejected lease causes a third-party guaranty on another rejected agreement to remain in effect, to the extent such agreement and the lease are part of an integrated transaction.

Automatic Stay Not Violated by Retention of Property Seized Before Filing

The United States Supreme Court recently held that 11 U.S.C. § 362(a)(3), a provision of the automatic stay of the U.S. Bankruptcy Code, does not require creditors to take affirmative steps to return property that was seized before the filing of a debtor’s bankruptcy petition. City of Chicago, Illinois v. Fulton, 2021 WL 125106, ____ U.S. ____ (Jan. 14, 2021).