Tenant Bankruptcy: Assumption and p y p Rejection of Commercial - - PowerPoint PPT Presentation

Presenting a live 90‐minute webinar with interactive Q&A

Tenant Bankruptcy: Assumption and p y p Rejection of Commercial Leases

Strategies for Landlords and Tenants to Protect Their Interests Under the Bankruptcy Code

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURS DAY, MARCH 10, 2011

Today’s faculty features: Jason B. Binford, Attorney, Kane Russell Coleman & Logan, Dallas Gary M. Kaplan, S pecial Counsel, Farella Braun + Martel, S an Francisco Robert L. LeHane, Partner, Kelley Drye, New Y

• rk

The audio portion of the conference may be accessed via the telephone or by using your computer's

• speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Conference Materials

If you have not printed the conference materials for this program, please complete the following steps:

• Click on the + sign next to “ Conference Materials” in the middle of the left-

hand column on your screen hand column on your screen.

• Click on the tab labeled “ Handouts” that appears, and there you will see a

PDF of the slides for today's program.

• Double click on the PDF and a separate page will open.

Double click on the PDF and a separate page will open.

• Print the slides by clicking on the printer icon.

Continuing Education Credits

FOR LIVE EVENT ONLY

For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps:

• Close the notification box
• In the chat box, type (1) your company name and (2) the number of

attendees at your location

• Click the blue icon beside the box to send

Tips for Optimal Quality

S d Q lit S

• und Quality

If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial 1-866-869-6667 and enter your PIN when prompted Otherwise please send us a chat or e mail when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance.

Viewing Qualit y

To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again press the F11 key again.

Tenant Bankruptcy: Assumption and Rejection

March 3, 2011

e a t a uptcy ssu pt o a d eject o

• f Commercial Leases

GARY M. KAPLAN, Farella Braun + Martel LLP

Bankruptcy Lease Basics

• Bankruptcy Code §365 governs debtor’s

assumption, rejection and assignment of unexpired commercial leases unexpired commercial leases

• Assumption = Ratification of lease

R j ti A ti i t di ti f l

• Rejection = Anticipatory repudiation of lease
• §365(d)(3) addresses tenant’s obligations

under lease pending assumption rejection or under lease pending assumption, rejection or assignment

6

Lease Obligations Pending Assumption/Rejection

• §365(d)(3) requires debtor-tenant to timely

perform its postpetition (i e post-bankruptcy) perform its postpetition (i.e., post-bankruptcy)

• bligations until it is assumed, rejected or assigned
• Court may extend time for performing obligations

i i ithi 60 d ft b k t fili b t arising within 60 days after bankruptcy filing, but not past 60th day

• Unpaid obligations give rise to administrative claim

p g g with priority over general unsecured claims

• Claim generally = amount provided in lease,

regardless of actual value to bankruptcy estate regardless of actual value to bankruptcy estate.

• E.g., In re Cukierman, 265 F.3d 846 (9th Cir. 2001)

7

Administrative Expense Claim for Unpaid Postpetition Lease Obligations

• Courts split regarding debtor’s obligation to immediately pay

post-petition lease obligations under §365(d)(3) if debtor post petition lease obligations under §365(d)(3) if debtor lacks funds to pay all other administrative expenses

• Most courts: No “super-priority”; postpetition lease
• bligations should not be paid unless sufficient funds to
• bligations should not be paid unless sufficient funds to

fully pay all administrative claims.

• Many courts: §365(d)(3) obligations = super-priority

administrati e claim m st be timel paid regardless of administrative claim; must be timely paid regardless of debtor’s ability to pay other administrative claims

• Other courts: Current payment of §365(d)(3) obligations

required, subject to later disgorgement if insufficient funds to pay all administrative claims; pro rata distribution

8

Scope of Debtor’s Postpetition Lease Obligations under §365(d)(3)

• §365(d)(3) generally encompasses obligations for taxes,

insurance CAM utilities repairs clean-up costs late insurance, CAM, utilities, repairs, clean up costs, late charges, interest and other monetary obligations.

• E.g., In re Cukierman, 265 F.3d 846 (9th Cir. 2001);

In re National Refractors & Minerals Corp 297 B R In re National Refractors & Minerals Corp., 297 B.R. 614 (Bankr. N.D. Cal. 2003); In re Far West Corp. of Shasta County, 120 B.R. 551 (Bankr. E.D. Cal. 1991) 1991)

• Some courts - failure to comply with obligation to restore

premises upon lease rejection does not give rise to administrative priority claim. E.g., In re TreeSource Industries, Inc. 363 F.3d. 994 (9th Cir. 2004)

9

Obligation to pay landlord attorney fees

• Most courts: Debtor required to pay landlord’s

postpetition attorney’s fees in enforcing §365(d)(3) postpetition attorney s fees in enforcing §365(d)(3)

• bligations (if allowed under lease), but some

courts hold to contrary

• In re Midway Airlines Group, 406 F.3d 229 (4th Cir.

2005); (§365(d)(3) obligations include attorneys’ fees in enforcing lease) fees in enforcing lease)

• In re Pacific Arts Publishing, Inc., 198 B.R. 319

(Bankr. C.D. Cal. 1996) (attorneys’ fees incurred in

§

enforcing lease are not included in §365(d)(3)

• bligations)

10

Exclusions to §365(d)(3) Lease Obligation Performance

• Certain lease obligations (listed in §365(b)(2))

l d d f

§365(d)(3)

f bli ti excluded from §365(d)(3) performance obligations

• Penalty rates, provisions arising from debtor’s failure

to perform non-monetary obligations p y g

• “Ipso facto” provisions (imposing obligations or

penalties based on filing of bankruptcy case, financial condition of debtor or appointment of financial condition of debtor or appointment of bankruptcy trustee or custodian prior to bankruptcy)

11

Stub Rent and Proration

• Courts split on debtor’s §365(d)(3) obligations where portion
• f obligation falling due postpetition accrued prepetition
• f obligation falling due postpetition accrued prepetition
• Many courts use billing date approach: Obligations due

postpetition including amounts accrued prepetition must be paid under §365(d)(3) without proration; debtor need not pay paid under §365(d)(3) without proration; debtor need not pay rent for postpetition occupancy if payment due prepetition.

• E.g., In re Montgomery Ward Holding Corp., 268

F 3d 205 (3d Ci 2001) I K i S ti F.3d 205 (3d Cir. 2001); In re Koenig Sporting Goods, Inc., 203 F.3d 986 (6th Cir. 2000); Ha-Lo Industries, Inc. v.. Centerpoint Properties Trust, 342

h

F.3d 794 (7th Cir. 2003); In re Burival, 613 F.3d 810 (8th Cir. 2010)

12

Stub Rent and Proration

• Substantial number of courts: Debtor must pay

prorated amount where obligations due postpetition prorated amount where obligations due postpetition include amounts accrued prepetition

• E.g., In re Handy Andy Home Improvement Centers,

Inc 144 F 3d 1125 (7th Cir 1998); In re Furr’s Inc., 144 F.3d 1125 (7th Cir. 1998); In re Furr s Supermarkets, Inc., 283 B.R. 60 (B.A.P. 10th Cir. 2002)

S t i t d t f l

• Some courts require prorated payment of lease
• bligations accruing postpetition even where

payment due prepetition. (E.g., In re Victory M k t I 196 B R 6 (N D N Y 1996)) Markets, Inc., 196 B.R. 6 (N.D.N.Y. 1996))

13

Stub Rent and Proration

• Alternatively, courts require prorated rent payment

for postpetition period where payment due for postpetition period where payment due prepetition under Bankruptcy Code §503(b)(1)

based on actual value of property to bankruptcy estate (E.g., In re Goody’s Family

Clothing, Inc., 610 F.3d 812 (3rd Cir. 2010), cert. den U S 131 S Ct 662 178 L Ed 2d den., ___ U.S. ___, 131 S.Ct. 662, 178 L.Ed.2d 483 (2010))

14

Related Publications By Gary M. Kaplan

• “Lessor Update: What Commercial Landlords

Need to Understand About Bankruptcy” (The Americas Restructuring and Insolvency Guide g y 2008/2009; Cal. State Bar Business Law News, Issue No. 1, 2009) “B k t P i F C i l

• “Bankruptcy Primer For Commercial

Landlords” (International Legal News, 2009;

• Cal. Real Estate Journal, 2009)

, )

15

Contact Information

Gary Kaplan Special Counsel, and Co-Chair of Restructuring, Insolvency & Creditors Rights Group F ll B M t l LLP Farella Braun + Martel LLP 235 Montgomery Street, 17th Floor S F i CA 94104 San Francisco, CA 94104 gkaplan@fbm.com 415 954 4940 415.954.4940

16

Commercial Leases in Bankruptcy

Deadlines to Assume or Reject and Calculating Rejection Damages by Robert L. LeHane

March 10, 2011

Overview Overview

• Deadlines for assumption and rejection
• General statutory scheme under section 502(b)(6)
• Components of “rent reserved” under the lease
• Mechanics of the calculation, including “money model” versus “time

model”

• Capped claim versus actual damages; mitigation

Capped claim versus actual damages; mitigation

• Rejection damages issues: rent concessions, setoffs, security

deposits, letters of credit

• Rejection following an assumption

18 18

Deadlines for A ti d R j ti Assumption and Rejection

19 19

Deadlines for Assumption and Rejection Deadlines for Assumption and Rejection

• Section 365(d)(4): the debtor must reject, assume, or assign its

l ithi i f 210 d ft fili f b k t leases within a maximum of 210 days after filing for bankruptcy, unless the lessor consents to allow the debtor more time

• Initial period of 120 days to decide

Initial period of 120 days to decide

• After 120 days, the bankruptcy court is limited to granting one

90-day extension for cause (§ 365(d)(4)(B)(i))

• Subsequent extensions may only be granted with the written

consent of the lessor (§ 365(d)(4)(B)(ii))

20

Deadlines for Assumption and Rejection: Debtor’s Request for Extension Debtor s Request for Extension

First extension (90 days)

• Routinely granted by courts (e.g., A&P, Blockbuster Video)

Routinely granted by courts (e.g., A&P, Blockbuster Video)

• Objecting landlord needs to show significant prejudice to deny extension –

more than just debtor’s failure to pay rent Second and subsequent extensions Lessor requests in consideration for written consent

• Stub rent
• Preference waiver
• Accrued but unbilled charges (e.g., taxes)
• Increased frequency of payment on CAM tax or insurance charges

Increased frequency of payment on CAM, tax, or insurance charges notwithstanding lease terms

• Attorneys’ fees, non-monetary
• Cash

21

Cash

Calculating Lease Rejection Calculating Lease Rejection Damages and the “502(b)(6) Cap”

22 22

Damages under a rejected lease: General Unsecured Claim General Unsecured Claim

Section 502(b)(6) caps damages under a rejected lease of id ti l l t nonresidential real property:

• Unpaid pre-petition obligations; plus
• The “rent reserved” under the lease for the greater of (i) one year
• r (ii) 15% of the remaining term of the lease, not to exceed

three years, following the earlier of the petition date or the date three years, following the earlier of the petition date or the date the premises are surrendered Congressional Intent: prevent claims under rejected long-term l t l f i d l real property leases from swamping unsecured class

23 23

Unpaid pre-petition obligations Unpaid pre petition obligations

• All prepetition arrears may be claimed as part of the general

unsecured claim – not “capped”

• In “billing date” jurisdictions (3d Cir. – Delaware) certain charges

may be administrative obligations instead of prepetition arrears: See Centerpoint Holdings v. Montgomery Ward Holding Corp. (In re p g g y g p ( Montgomery Ward Holding Corp.), 268 F.3d 205 (3d Cir. 2001) Ex: 2011 real estate taxes are due quarterly in arrears (Q1 taxes due 6/30/11; Q2 taxes due 9/30/11; Q3 taxes due 12/31/11 etc ) due 6/30/11; Q2 taxes due 9/30/11; Q3 taxes due 12/31/11, etc.). Debtor files bankruptcy on April 15, 2011.

• Pro-Ration Theory – Q1 taxes would be included as a prepetition

t f th l d l i arrearage as part of the general unsecured claim.

• Billing Date Theory – Q1 taxes would be an administrative
• bligation

24

g

“Rent Reserved” Under the Lease: Rent Reserved Under the Lease: Components of the 502(b)(6) Calculation

25 25

“Rent Reserved” Under the Lease Rent Reserved Under the Lease

“Rent reserved” under the lease is that which is:

• Fixed
• Recurring
• Related to the value of the leasehold

26

What is “rent reserved” under the lease? What is rent reserved under the lease?

Generally included: Generally NOT included:

• Base rent
• Common area maintenance
• Attorneys’ fees
• Repair costs
• Real estate taxes
• Insurance
• Reletting costs
• Broker fees
• Utilities (if fixed amount, and

paid to landlord and not directly to utility)

• Late charges

27

The Mechanics of the Calculation The Mechanics of the Calculation

28 28

The mechanics of the 502(b)(6) calculation The mechanics of the 502(b)(6) calculation

Common mistake: Calculating 502(b)(6) damages from the effective date of rejection the effective date of rejection.

• Per the statute, usually perform calculation based on rent reserved

under the lease from the petition date

• Use surrender date if surrender under state law occurred prepetition
• Calculating from petition date does not “double count” administrative

( )( ) rent paid because 502(b)(6) is a statutory construct; any post-petition rent collected by landlord reduces actual damages

• Actual damages are determined by reference to applicable state law

g y and are typically measured from the effective date of rejection

29

The mechanics of the 502(b)(6) calculation The mechanics of the 502(b)(6) calculation

One year or fifteen percent? y p

Based on remaining term of lease as of petition date – If Cap will be If… Cap will be… 12 to 80 months remain One year (or actual damages) 80 to 240 months remain 15% More than 240 months Three years Less than 12 months Actual damages

30

The mechanics of the 502(b)(6) calculation: “money model” versus “time model” money model versus time model

“Money Model” – 15% calculation “Time Model” – 15% calculation

• Calculate rent over the entire

term of the lease as of petition date, and multiply by 0 15

• Calculate remaining term of

lease as of petition date and multiply by 0.15. 0.15

• Usually results in higher

capped claim because it

• Example = 100 months left
• n lease as of petition date

means cap is calculated as capped claim because it gives effect to periodic late term rent escalations means cap is calculated as next 15 months’ rent

• Minority view, but consistent
• Majority view (see In re

Andover Togs, Inc., 231 B.R. 521 (Bankr. S.D.N.Y. 1999)) with plain language of the statute (see Heller Ehrman

• pinion – Feb. 2011)

31

The mechanics of the 502(b)(6) calculation: “money model” versus “time model” money model versus time model

Recent decision: In re Heller Ehrman LLP, 2011 WL 635224 (N.D. Cal.

• Feb. 11, 2011)
• Plain language supports the time model.
• “Term of lease” refers to length of a lease based on time, not

rent rent.

32

502(b)(6) Cap v Actual Damages 502(b)(6) Cap v. Actual Damages

33 33

502(b)(6) Cap v. Actual Damages 502(b)(6) Cap v. Actual Damages

• 502(b)(6) is not a formula for calculating the lessor’s claim – it is a

li it d limit on damages

• If the 502(b)(6) cap is greater than the actual damages, the rejection

claim is determined by reference to actual damages claim is determined by reference to actual damages

• Example: If there is less than one year left on the lease as of

petition date, lessor is not entitled to claim for one year’s rent under 502(b)(6) Lessor’s claim for rejection damages is the rent payable 502(b)(6). Lessor s claim for rejection damages is the rent payable under the lease from and after the effective date of rejection.

34

502(b)(6) Cap v. Actual Damages: Mitigation 502(b)(6) Cap v. Actual Damages: Mitigation

• Duty to mitigate determined by state law; however, debtors

invariably argue that absent evidence of mitigation lessor’s actual invariably argue that absent evidence of mitigation, lessor s actual damages are less than the capped claim and seek to reduce rejection damages

• Requires landlords to:
• Provide debtor with brief statement of mitigation efforts
• Provide details regarding new tenant: term, monthly rent, etc.
• Recalculate actual damages from effective date of rejection by

subtracting projected rent under new tenant’s lease through end subtracting projected rent under new tenant s lease through end

• f term with debtor’s lease (if not rejected) – actual damages

may fall below 502(b)(6) cap

35

Illustrative Rejection Damage Issues Illustrative Rejection Damage Issues

36 36

Rejection Damage Issues: Rent Concessions/Rent Relief Rent Concessions/Rent Relief

Hypothetical: Lease amendment provides that tenant is entitled to reduced monthly rent conditioned on no events of default.

• Lessor calculates rejection damages based on original rent
• Debtor may seek a lower 502(b)(6) cap by arguing that “rent reserved”

d h l h ld b d i d b f i under the lease should be determined by reference to rent concessions under lease amendment

• Lessor’s argument is that 502(b)(6) calculations should revert back to higher

rent under original lease terms - Debtor’s argument ignores effect of:

• 502(g) - provides the claim calculations are determined as if the claim

had "arisen before the date of the filing of the petition” had arisen before the date of the filing of the petition

• 365(g) – rejection is deemed to be a breach that occurred immediately

before the filing of the petition

37

Rejection Damage Issues: Tenant/Debtor Claims Against Landlord Tenant/Debtor Claims Against Landlord

• Debtor claims that landlord has payment obligation to tenant (e.g.,

t t ll ) tenant allowance)

• If bankruptcy is filed before payment is due, debtor may seek to

reduce 502(b)(6) capped claim by amount of unpaid amount reduce 502(b)(6) capped claim by amount of unpaid amount

• Query whether unpaid obligation reduces actual damages or

reduces the capped claim; Landlord argument is that under 502(b) and 502(g), actual damages should take into account rights of setoff with respect to any amounts owed to debtor

38

Rejection Damage Issues: Security Deposits Security Deposits

• Security deposits held by lessors are considered property of the

d bt ’ t t t i ll li t d t d bt ’ h d l debtor’s estate, typically listed as assets on debtor’s schedules

• Security deposits are applied as a dollar-for-dollar reduction against

the 502(b)(6) cap the 502(b)(6) cap

• Practice established in the pre-Code case of Oldden v. Tonto

Realty Corp., 143 F.2d 916 (2d Cir. 1944)

• Specifically discussed in legislative history – Congress did not

intend for lessor to be able to offset actual damages against the security deposit and then claim for the balance under 502(b)(6) security deposit and then claim for the balance under 502(b)(6).

• See In re AB Liquidating Corp., 416 F.3d 961 (9th Cir. 2005)

39

Rejection Damage Issues: Letters of Credit Letters of Credit

• Letters of credit historically provide landlords with a greater recovery

j ti d l i th it d it b

• n rejection damage claims than security deposits because

proceeds from the LOC, unlike security deposits, are not considered property of the estate

• Recently, bankruptcy courts and the Third, Fifth, and Ninth Circuit

Courts of Appeals have held that letters of credit are merely a form

• f security deposit and are treated the same way (dollar-for-dollar

y p y ( deduction from 502(b)(6) cap)

• See In re PPI Enterprises (U.S.) Inc, 324 F.3d 197 (3d Cir. 2003)

40

Rejection Damage Issues: Letters of Credit Letters of Credit

• Well drafted lease providing for LOC will:
• Avoid “security deposit” language
• Provide for a sight draft; require no notice or action by tenant to

g ; q y draw on LOC

• Recent Fifth Circuit decision held that 502(b)(6) cap does not apply

h l dl d d LOC d d t fil f f l i when landlord draws on LOC and does not file a proof of claim

• See EOP-Colonnade of Dallas Ltd. P’ship v. Faulkner (In re

Stonebridge Techs ) 430 F 3d 260 (5th Cir 2005) Stonebridge Techs.), 430 F.3d 260 (5th Cir. 2005)

41

What if a debtor rejects a lease that it previously assumed?

42 42

Rejection following an assumption: Administrative Claim Administrative Claim

• Bankruptcy Code section 503(b)(7) limits a landlord’s administrative

l i if d bt (i) l d (ii) l t d i th claim if a debtor (i) assumes a lease and (ii) later, during the bankruptcy case, rejects the same lease, to:

• the monetary obligations due under the lease for two years from
• the monetary obligations due under the lease for two years from

the later of the rejection of the lease or the surrender of the premises

• Any remaining damages are deemed a general unsecured claim

subject to the 502(b)(6) cap

• Conditional assumption of leases – see In re BI-LO, LLC et al., Case
• No. 09-02140-hb (Bankr. D.S.C.)

43

For more information, please contact: For more information, please contact:

Robert L. LeHane

PARTNER Bankruptcy and Restructuring Phone: (212) 808-7573 rlehane@kelleydrye.com

Special thanks to Dana Kane and Vikki Bollettino for their assistance preparing these materials.

44

Adequate Assurance of Future Adequate Assurance of Future Performance Performance Performance Performance

By: Jason Binford By: Jason Binford Kane Russell Coleman & Logan PC Kane Russell Coleman & Logan PC March 10 2011 March 10 2011 March 10, 2011 March 10, 2011

45 45

Overview Overview Overview Overview

1.

When is "adequate assurance of future q performance" required?

2.

Case law ‐ application and interpretation of the requirement

3.

Heightened requirement – section (b)( ) d " h " 365(b)(3) and "shopping centers"

46 46

When is Adequate When is Adequate Assurance of Future Assurance of Future P f R i d? P f R i d? Performance Required? Performance Required?

47 47

Adequate assurance of future Adequate assurance of future performance relates entirely to the ti f l t assumption of leases or executory

• contracts. The full phrase appears

in the Code only three times – all within section 365 within section 365.

48 48

Section 365(b)(1)(B) Section 365(b)(1)(B) Section 365(b)(1)(B) Section 365(b)(1)(B)

• If there has been a default in an

executory contract or unexpired lease

• f the debtor

the trustee may not

• f the debtor, the trustee may not

assume such contract or lease unless, at the time of assumption of such at the time of assumption of such contract or lease, the trustee provides f f adequate assurance

• f

future performance under such contract or lease.

49 49

Section 365(f)(2)(B) Section 365(f)(2)(B) Section 365(f)(2)(B) Section 365(f)(2)(B)

• The trustee may assign an executory
• The trustee may assign an executory

contract or unexpired lease of the debtor only if adequate assurance of future performance by the assignee u u e pe o a ce by e a g ee

• f such contract or lease is provided,

whether or not there has been a whether or not there has been a default in such contract or lease.

50 50

Section 365(b)(3) – 3 ( )(3) Heightened Requirements

• Assignee must have a similar operating

performance and financial condition as the p debtor

• Shopping center restrictions enforceable such
• Shopping center restrictions enforceable such

as:

• Radius
• Use
• Tenant mix

51 51

C L C L Case Law Case Law

 Common refrain:

This is a fact intensive

• inquiry. We must take this on a case‐by‐

q y y case basis.

 If that is true, what can be learned from

the case law?

52 52

Case Law Case Law

 Intention of AAFP – preserving the benefit of

the bargain. In re Sapolin Paints, 5 B.R. 412 (Bankr. g

p , 5 4 ( E.D.N.Y. 1980)

 In re Resource Technology Corp., 624 F.3d 376 (7th 

gy p , 4 3 37 (7

• Cir. 2010)

 The

legal standard is preponderance, so a

 The

legal standard is preponderance, so a proposed assignee is required "to show it was more likely than not to perform the obligations d th t t “ under the contract.“

 Is this really the standard?

53 53

In re Resource Technology Corp. In re Resource Technology Corp. – Splitting Hairs or a Significant Difference? Splitting Hairs or a Significant Difference?

 AAFP Movant Option #1: 

p Must show by a preponderance of the evidence that adequate assurance

• f

evidence that adequate assurance

• f

future performance has been provided.

 AAFP Movant Option #2:  AAFP Movant Option #2:

Must show that assignee is more likely than f d h f h not to perform under the terms of the lease.

54 54

Other Guidance Provided by Case Law: Other Guidance Provided by Case Law:

 Movant bears the burden

i l i b ffi i d d

 A simple promise to pay can be sufficient. It depends on

who is making the promise.

 N

l d i i i hi

 Newly created entities cannot point to a payment history,

so courts will look at the finances of the new entity's parent company and/or financial backers

 If the contract is not being assigned, probably don't have

to show AAFP at all if there has been no default under the A d j d f l b bl ' d I

• contract. And, just any default probably won't do. It must

have been a "material" default.

55 55

Section 365(b)(3) – Shopping Centers

What is a shopping center?

56 56

In re Joshua Slocum In re Joshua Slocum

922 F 2d 1081 (3d Cir 1980) 922 F 2d 1081 (3d Cir 1980) 922 F.2d 1081 (3d Cir. 1980) 922 F.2d 1081 (3d Cir. 1980) Factors:

A. A combination of leases; B All l h ld b i l E. The purposeful development of the i h i B. All leases held by a single landlord; premises as a shopping center; C. All tenants engaged in the commercial retail distribution of goods; F. The existence of a master lease; distribution of goods; D. The presence of a common parking area; G. The existence of fixed hours during which all stores are open; common parking area; stores are open;

57 57

Factors… Factors…

H. The existence of joint advertising; K. The right of the tenants to terminate their leases I. Contractual interdependence of the if the anchor tenant terminates its lease; p tenants as evidenced by restrictive use provisions in their leases; L. Joint participation by tenants in trash removal and other maintenance; in their leases; J. The existence of t g t and other maintenance;

• M. The existence of a tenant

i d percentage rent provisions in the leases; mix; and N. The contiguity of the stores.

58 58

S ti 6 (b)( ) ti 6 (f)( ) S ti 6 (b)( ) ti 6 (f)( ) Section 365(b)(3) versus section 365(f)(1) Section 365(b)(3) versus section 365(f)(1)

In re Joshua Slocum

922 F 2d 1081 (3d Cir 1980) 922 F.2d 1081 (3d Cir. 1980)

In re Sun TV & Appliances, Inc.

B R 6 (B k D D l ) 234 B.R. 356 (Bankr. D. Del. 1999)

In re Track Auto Corp.

367 F.3d 237, 242‐43 (4th Cir. 2004)

59 59

C l i C l i Conclusion Conclusion

Non‐debtor party should get the benefit of its bargain. No more. No less. g Non‐debtor parties: no guarantees, no windfalls Debtors/assignees: no free rides Debtors/assignees: no free rides

60 60

See also See also: Jason Binford, Jason Binford, Beyond Chimerical Beyond Chimerical Possibilities: the Meaning and Application Possibilities: the Meaning and Application Possibilities: the Meaning and Application Possibilities: the Meaning and Application

• f Adequate Assurance of Future
• f Adequate Assurance of Future

Performance Performance 18 Am Bankr Inst L Rev 18 Am Bankr Inst L Rev Performance Performance, 18 Am. Bankr. Inst. L. Rev. , 18 Am. Bankr. Inst. L. Rev. 191 (2010). 191 (2010).

61 61

Jason Binford Jason Binford Kane Russell Coleman & Logan PC Kane Russell Coleman & Logan PC Kane Russell Coleman & Logan PC Kane Russell Coleman & Logan PC (214) 777‐4227 jbinford@krcl.com

62 62