Deadlines for Assuming Nonresidential Leases In Chapter 11 Bankruptcy

Section 365 (a) of the Bankruptcy Code provides, in relevant part, that a debtor in possession may, subject to the Court’s approval, “assume or reject any unexpired lease or executory contract of the debtor.”  11 U.S.C. § 365(a).  If that unexpired lease is a lease of nonresidential real property, both the debtor and the landlord will need to understand the applicable Bankruptcy Code deadlines for assumption or rejection of such leases.  Failure to timely assume a nonresidential lease, will result in rejection of the lease.

Pursuant to section 365(d)(4)(A) of the Bankruptcy Code, a debtor is provided an initial period of 120 days within which to assume or reject unexpired leases of nonresidential real property. See 11 U.S.C. § 365(d)(4)(A). However, section 365(d)(4)(B)(i) of the Bankruptcy Code provides that the Court may extend this initial 120 day period for an additional 90 days “for cause.” See 11. U.S.C. §365(d)(4)(B)(i).).  Courts have developed a non-exhaustive list of factors to consider in determining what constitutes sufficient “cause” to extend the time period within which a debtor may assume or reject unexpired leases of nonresidential real property. See, e.g., In re Burger Boys, Inc., 94 F.3d 755, 761 (2d Cir. 1996); In re Wedtech Corp., 72 B.R. 464, 471-72 (Bankr. S.D.N.Y. 1987); In re Perfectlite Co., 116 B.R. 84, 86 (Bankr. N.D. Ohio 1990); In re Service Merchandise Co., 256 B.R. 744, 748 (Bankr. M.D. Tenn. 2000). According to the Court in Service Merchandise, these factors include:

(1) whether the lease is the primary asset of the debtor;

(2) whether the lessor has a reversionary interest in the building built by the debtor on the landlord’s land;

(3) whether the debtor has had time to intelligently appraise its financial situation and the potential value of its assets in terms of the formulation of a plan;

(4) whether the lessor continues to receive the rent required in the lease;

(5) whether the lessor will be damaged beyond the compensation available under the Code due to the debtor’s continued occupation;

(6) whether the case is exceptionally complex and involves a large number of leases;

(7) whether the need exists for a judicial determination of whether the lease is disguised as a security interest;

(8) whether the debtor has failed or is unable to formulate a plan when it has had more than enough time to do so; and

(9) any other factors bearing on whether the debtor has had a  reasonable amount of time in which to decide whether to assume or reject the lease.  Id.

 

This list is not exclusive, and a great deal of discretion is left to the court to weigh all relevant factors related to the requested extension. In re Service Merchandise Co., 256 B.R. at 748.

 

Comments

One Reply to “Deadlines for Assuming Nonresidential Leases In Chapter 11 Bankruptcy”

  1. My son is disabled, but the pescors of getting disability is horrible!! This agency is not user-friendly for the consumer and it is VERY difficult for the disabled person to get assistance without PAYING for an attorney. It appears that the ONLY way to get disability is to HIRE an attorney. The pescors is VERY long and painful for the disabled person and family! Then there is the housing factor that again is horrible. The disabled has to JUMP through this agency’s hoops also! My son and I have been discriminated against by the local Section 8 Agency! The housing opportunities here are terrible and NOT safe!! Lots of drugs and crime in these houses. I need to have my son in a safe environment and I need to feel safe going to and from his home. The requirements are that he HAS to be locked into staying where he finds an apartment for a YEAR! This is unfair if the area is unsafe!! The allotment is too low to find suitable apartments that are safe. Section 8 housing should be given to the apartment complex wherever the disabled finds safe living arrangements, and NOT to just section 8 listed establishments. This system needs to change!!

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