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| vol 19, num 1 | September, 2024 |
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| When Will I Get Paid? Unpaid Post-Petition Rent and Subchapter V |
| Subchapter V presents interesting challenges for landlords, including increased uncertainty regarding the timing of payments. Specifically, 11 U.S.C. § 1191(e) allows certain debtors to extend the payment of administrative claims over three to five years, rather than requiring payment of all administrative claims in full upon the effective date of a plan. Currently, no precedent exists on whether a debtor can extend its payment of post-petition rent as an administrative expense under 11 U.S.C. § 1191(e), and such a determination may turn on each court’s classification of claims arising under § 365(d) (3). |
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| Section 365(l) – Landlords’ Underutilized Remedy |
| Section 365(l) of the Bankruptcy Code (“section 365(l)”), which entitles a landlord to “require a deposit or other security for the performance of the debtor’s obligations under the lease substantially the same as would have been required by the landlord upon the initial leasing to a similar tenant” when a tenant seeks to assume and assign a lease, is an important landlord protection, yet it is one that seems to have been underutilized by landlords facing lease assignments. With the challenges facing commercial real estate generally and the significant year-over-year increases in commercial bankruptcy filings in 2023 and 2024, the
need for commercial landlords to act to protect their interests when a tenant files a chapter 11 bankruptcy case and the opportunity to obtain the protections afforded by section 365(l) are greater than ever. |
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| Overleveraged Real Estate Is at a Tipping Point |
| Something happened in 1991 that, ever since, drove a bull market in just about everything. No assets rode that bull better than commercial real estate. But what if that bull is back in its pen, and will be there for a long time? If so, the nature of 30-plus years of commercial real estate investment just changed. What may seem to be evolving is, in fact, here and now. The change has happened. What is still evolving is the reaction of a massive market built for something different. |
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