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BAPCPA: Another Nail in the Coffin of Retail Reorganizations

By Yitzhak Greenberg
June 18, 2010

The Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) has had a profound effect on retail reorganizations, particularly, the restriction on bankruptcy courts' broad discretion to extend debtors' time to assume or reject leases. This shortened time period, a maximum of 210 days, has been alleged to be responsible for the death of retail reorganizations. Did BAPCPA further impact the debtor/landlord relationship ' by limiting the right to assign shopping center leases burdened by a clause requiring a use that either no longer exists or is economically unfeasible, e.g., Saturn dealerships, video rentals, beeper sales or typewriter repairs (“useless use clause”)? Under BAPCPA, courts' discretion to invalidate useless use clauses may be severely constrained. This dynamic combination of the time limitations and the strict enforcement of use clauses may effectively terminate many retail debtors' ability to assume or assign leases.

Prior to BAPCPA, courts considered these clauses de facto anti-assignment clauses and, as such, not enforceable. While 11 U.S.C. ' 365(b)(3) required adequate protection for the assumption of a shopping center lease (including use clauses), many courts balanced the rights of the debtor and shopping center landlords, excising useless use clauses pursuant to ' 365(f)(1)(addressing anti-assignment clauses). BAPCPA amended ' 365(f)(1) subjecting courts' discretion to modify use clauses to ' 365(b)(3) and, as such, many concluded that BAPCPA required strict compliance with shopping center lease use clauses, even useless use clauses. However, an analysis of the pre BAPCPA statute demonstrates that courts have liberally interpreted limitation on their discretion regarding shopping center leases. Thus, under BAPCPA, courts may continue to invalidate useless use clauses.

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