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| vol 17, num 1 | October, 2020 |
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| Comparing Apples to Oranges: What Does “Similar to” Mean Under § 365(b)(3)(A)? |
| In a matter of first impression, the U.S. District Court for the Southern District of New York vacated and remanded a bankruptcy court order that had overruled objections and allowed the assumption and assignment of Sears’s lease with Mall of America. The district court found that the assignee failed to give Mall of America “adequate assurance of future performance” of the lease under 11 U.S.C. § 365(b)(3)(A) because the financial condition and operating performance were not “similar to” those of the debtor at the time the lease was executed. |
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| Reevaluating Retail REIT Restructurings |
| On May 15th, JCPenney announced that the company was filing for chapter 11 relief. Another in a trend of major retailers filing for bankruptcy. JCPenney’s announcement was expected, as forced closures in the pandemic exacerbated the company’s pre-COVID financial problems. However, what raised some eyebrows is the company’s plan to spin its properties into a real estate investment trust (REIT) as a part of its proposal to emerge from bankruptcy.
A REIT is a company that owns, operates or finances income-generating real estate. Modeled after mutual funds, most REITs pool the capital of numerous investors, which the REIT uses to buy and operate real estate; the REIT then leases the properties, collects rent and distributes annually at least 90% of its taxable income (the rental proceeds) as dividends to its shareholders. There are a variety of commercial and residential properties that fall under the REIT umbrella, including apartment or condominium buildings, shopping centers, hotels, industrial warehouses and even hospitals. Generally, a REIT owns the property and leases it to a tenant that will operate the underlying business.
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| Northern District of Illinois Bankruptcy Court Applies Force Majeure Provision to Illinois Restaurant’s Nonpayment of Rent During Government-Mandated Business Closures |
| In a June 3, 2020, decision, the U.S. Bankruptcy Court for the Northern District of Illinois held that a force majeure provision partially excused a restaurant’s obligation to make post-petition rental payments after the Governor of Illinois, J.B. Pritzker, suspended in-person dining services due to COVID-19. Governor Pritzker issued an executive order, effective as of March 16, 2020, suspending restaurants from operating services for on-premises consumption, but permitted, and encouraged, operating services for delivery and pick-up. In In re Hitz Restaurant Group, the court found that the governor’s suspension of in-house
dining services “unambiguously triggered” the force majeure provision of the debtor’s lease such that the debtor’s nonpayment of post-petition rent was partially excused.
Hitz Restaurant Group operated a bar and restaurant in Chicago under a lease agreement with Kass Management Services Inc. (the landlord). The lease required that rent be paid on the first of each month. Hitz allegedly had trouble making timely rental payments starting in July 2019, which caused the landlord to file a complaint in state court for possession of the property and monetary damages. The trial in the state court action was scheduled to begin on Feb. 25, 2020.
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| ABI Is Seeking Members to Become Volo Authors |
| ABI's Volo site provides members with the most timely bankruptcy decisions from the U.S. Courts of Appeals and Bankruptcy Appellate Panels. But we can’t continue to make these timely summaries available without our volunteer
authors! Volunteer authors provide summaries of new opinions within 24 hours of their release, and each summary includes the full text of the opinion, the case status, a citation and the judge(s) involved. If you think that you have a few extra hours a month to become a Volo author, please visit the Volo site to sign up!
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