Commercial landlord’s tenant files bankruptcy. Landlord has two goals. First is possession of the premises. Second is money. The first goal may be pressing if landlord has a replacement tenant desiring occupancy.
Each goal breaks down into three parts. Possession is most secure if Landlord obtains three things in bankruptcy:
1. Relief from the automatic stay,
2. Surrender of the premises,
3. Rejection of the lease.
Collecting money also means three things to the landlord in bankruptcy:
1. collecting money that was owed before the bankruptcy (“pre-petition arrearage”),
2. collecting post-petition lease obligations (“administrative rent”)
3. “lease rejection damages”.
In early fall, 2012, a landlord swiftly obtained all of the above. Landlord is a major Los Angeles commercial developer and operator of retail centers and other investment real estate. A Landlord subsidiary got notice that a pizza shop tenant had filed bankruptcy. Landlord turned to the law office of Jerome S. Cohen, on the basis of past work by Cohen (getting Landlord quick repossession of premises of an anchor tenant in another center).
Landlord had a replacement tenant ready to start its pizza business at once. First, Cohen filed papers for relief from the “automatic stay” to permit progress in Landlord’s pending eviction case. Then Cohen made direct contact with the Chapter 7 trustee. Cohen told the trustee that the facts made it probable that the Court would grant stay relief. Landlord would then proceed with eviction, but eviction might take months, and New Tenant wanted occupancy at once. The trustee agreed to consent to stay relief, to surrender his interest in the premises, and to reject the lease. Landlord had achieved all its goals in the bankruptcy. Cohen filed the agreement with the Court. But this gave Landlord only the interest of the debtor in bankruptcy, a co-tenant. The other co-tenant was not in bankruptcy, and not bound by the stipulation (which bound only the co-tenant in bankruptcy).
The non-bankrupt co-tenant was in a position to frustrate Landlord’s repossession of the premises. Cohen contacted the non-bankrupt co-tenant and negotiated his surrender of the premises also. Landlord was then able at once to accommodate the new tenant. Here, recovering money was secondary. The case was a Chapter 7 liquidation. The operators had failed and had little money. Landlord was satisfied to keep open a chance to collect money. Landlord could narrow the eviction case to money recovery alone (since Landlord had retaken possession). In Chapter 11, Cohen said, if the bankruptcy debtor’s prospects were good, and the debtor wanted to keep the premises, Landlord’s objective may have been primarily money. Cohen has successfully represented Landlords in Chapter 11.