When a property owner signs a new tenant for their commercial property, they typically have high hopes that the tenant’s business or operation will succeed. Unfortunately, this is not always the case and some businesses fail. For some tenants, an option could be moving after their lease term is up or negotiating a settlement. But for others, bankruptcy may be an option they choose to pursue.
If a commercial tenant files for bankruptcy, the property owner needs to keep the following information in mind.
What a Property Owner Can Do
If a tenant files for bankruptcy, the property owner should be immediately aware of and closely follow the filing. This is because when a tenant files for bankruptcy, a lessor may not seek to evict the tenant or sue for unpaid rent without permission of the Bankruptcy Court due to the automatic stay of Bankruptcy Code Section 362. As discussed above, parties filing bankruptcy are obligated to pay post-filing rent, but you will likely have to take steps to make sure this is done.
What a Property Owner Can Not Do
If a property owner violates the automatic stay, there could be severe consequences, including sanctions. Therefore, it is critical that the property owner proceed carefully and with legal advice from a qualified expert.
What Happens After Bankruptcy is Filed
After filing for bankruptcy, the tenant must pay rent and take care of all other obligations under the lease, such as maintaining proper insurance, but the landlord often needs to take steps to ensure the rent is paid. If the tenant does not pay rent or maintain insurance, you need to take action in the bankruptcy court to enforce your rights. You may be able to compel the payment of rent or get permission to proceed with an eviction. It is also crucial that you timely file a proof of claim with the Bankruptcy Court. Finally, a party filing for bankruptcy must assume or reject your lease. While there are slightly different rules and timelines in various bankruptcy cases, the above should give you a good idea of your rights. You should consult with an attorney with bankruptcy experience to understand your rights and the specific rules that apply in your circumstance. Failure to act promptly can hurt your legal rights and your pocketbook. ,
My Tenant Filed for Bankruptcy. What Does This Mean for My Business?
As a property owner, you have a business to run as well. If a tenant files for bankruptcy, your business could suffer.
When working with Weintraub Zolkin Talerico & Selth, we can work with you (and your tenant) on the best options for everyone involved. If a tenant approaches you about a potential bankruptcy, we encourage you to contact our experienced Los Angeles bankruptcy attorneys to work out a favorable solution.