Recent years have seen many prominent retailers filing for bankruptcy, such as The Sports Authority, Toys “R” Us, The Limited, Coldwater Creek, Radio Shack, and Charming Charlie. This wave is expected to continue into 2018, and commercial landlords need to know their rights (and obligations) when their tenants file for relief in bankruptcy. The rules governing leases in bankruptcy are lengthy and complex, but landlords should pay particular attention to the main issues that typically arise in a tenant bankruptcy.

Confirmation of a Chapter 11 plan of reorganization generally requires the consent of each impaired class of creditors.[1] But, upon satisfaction of additional statutory requirements, a plan proponent can obtain confirmation of a “cramdown” plan over the dissent of one or more classes of creditors as long as “at least one class of claims that is impaired under the plan has accepted th

The U.S. Court of Appeals for the Tenth Circuit recently held that the Rooker-Feldman doctrine did not bar the trial court from considering the plaintiff’s claims because she was not challenging or seeking to set aside an underlying non-judicial mortgage foreclosure proceeding under Colorado law.

Accordingly, the Tenth Circuit remanded to the trial court to determine what effect, if any, the non-judicial proceeding had under the doctrines of issue and claim preclusion.

Toys “R” Us has offered certain of its landlords an unprecedented payment package in exchange for more time to decide which leases it will keep and which it will dispose of in its chapter 11 bankruptcy case. The package includes payment of “additional rent,” including common-area maintenance, insurance, and real estate tax arrearages under rejected leases, amounts that ordinarily would not be paid in full. The deal may serve as a model for the treatment of landlords in future large retail bankruptcy cases.

Context

Looming maturity dates (for which borrowers are not prepared to pay the remaining balance) or other monetary defaults of numerous commercial mortgages may present many opportunities for purchasing property on a discounted basis. With proper precautions and investigation, what appears to be a “deal” really can be a “deal.” However, purchasing a property at a foreclosure sale or other distressed sale has many traps for the unwary. What appears to be a bargain can quickly turn into a nightmare, if the buyer rushes into the purchase without enough information.

As we described in our client alert dated September 14, 2016, in the aftermath of the real estate downturn from 1989 to 1993, when real estate mortgage lenders began to contemplate making new mortgage loans, they sought to create new legal structures to prevent their prospective borrowers from filing for Chapter 11, and to ameliorate the adverse consequences, if such a filing were to occur.

On January 30, 2018, the Michigan House of Representatives passed House Bill 4471, which creates a Uniform Commercial Real Estate Receivership Act (the “Act”) in Michigan, by a vote of 101-7. The Michigan Senate previously approved the Act, and the proposed law now goes to Governor Snyder for his signature. House Bill 4471 can be viewed here.

The Background of the Bill

In Antone Corp. v. Haggen Holdings, LLC (In re Haggen Holdings, LLC), 2017 WL 3730527 (D. Del. Aug. 30, 2017), the U.S. District Court for the District of Delaware considered whether, as part of a bankruptcy asset sale, a chapter 11 debtor could assume and assign a nonresidential real property lease without giving effect to a clause in the lease requiring the debtor to share 50 percent of any net profits realized upon assignment.

The Appellate Court of Illinois, First District, recently dismissed a mortgagee’s “breach of mortgage contract” action as an impermissible second refiling following prior voluntary dismissals of a 2011 foreclosure complaint and 2013 action for breach of the promissory note based upon the same note and mortgage.