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The Leasing Hotline
BANKRUPTCY
Where the landlord does not make a claim in the tenant's bankruptcy proceeding, it is not precluded from seeking the remedies contained in the parties' lease. In re: Stonebridge Technologies, Inc., No. 04-10494, U.S. Court of Appeals for the Fifth Circuit, Nov. 8, 2005.
On Sept. 21, 2000, the landlord and tenant entered into a lease whereby the tenant agreed to lease space in an office building. Under the terms of the lease, the tenant was required to provide a security deposit to the landlord plus an irrevocable stand-by letter of credit for $1.4 million. Thereafter, on Sept. 6, 2001, the tenant filed for bankruptcy under Chapter 11. On Oct. 22, 2001, the landlord initiated a draw request to the bank under the irrevocable letter of credit for the full amount. The bank rejected the draw request because of some technical deficiencies. On Oct. 23, 2001, the landlord and tenant announced an agreement in open court that the lease would be rejected effective no earlier than Oct. 1, 2001, and no later than Oct. 23, 2001. On Oct. 25, 2001, the landlord corrected the deficiencies in its draw request to the bank, and the bank honored the letter of credit, issuing a check for $1.4 million to the landlord. On Nov. 8, 2001, the bankruptcy court approved the rejection of the lease. However, the landlord never filed a proof of claim for its actual lease rejection damages.
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