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In the Spotlight: New Bankruptcy Law Is Not All Good for Landlords

By Trent L. Rosenthal
July 28, 2006

On April 20, 2005, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which significantly changed the U.S. Bankruptcy Code. While various aspects of the new law give landlords greater rights in tenant bankruptcies, the law is not all good for landlords. The benefits of the new law for commercial landlords have been written about extensively, including an analysis of the new provisions setting definitive deadlines for a tenant to assume or reject a lease under the Bankruptcy Code. What has not been highlighted is that if a commercial tenant files a Chapter 7 bankruptcy case, a landlord's space could be tied up for 120 days or more, instead of 60 days or more under the old law. (This article does not address the special rules and protections for landlords of residential properties and is devoted to a discussion of the provisions regarding commercial properties.)

This situation may occur because many tenants file Chapter 7 bankruptcies, a trustee is appointed, and there is no effort to reorganize the business. For this reason, a landlord will need to be much more proactive in cases where the tenant files Chapter 7 bankruptcy and should not just idly sit by and allow the lengthened time period to run.

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