Court Caps Landlord's Bankruptcy Claim Against Lease Guarantor

A big issue in real estate and retail bankruptcies, among others, involves the disposition of commercial real estate leases, given the potential magnitude of landlord damage claims under state law resulting from a tenant's default under a long-term lease. Given these claims could overwhelm other creditor claims in a tenant's bankruptcy case, the Bankruptcy Code includes a provision that limits a landlord's claim, which presents challenges for landlords as creditors in bankruptcy cases. In In re Cortlandt Liquidating, Case No. 23-cv-03262-MKV, the U.S. District Court for the Southern District of New York, sitting as an appellate court, reviewed a Bankruptcy Court decision that addressed a number of issues involving a commercial landlord's claims in bankruptcy.

Landlord Asserted a $44M Claim in the Debtor's Bankruptcy Case

The opinion began by noting the bankruptcy case involved "the iconic New York City institution, Century 21 Department Store, and its affiliates," located on the Upper West Side of Manhattan in New York City. According to the opinion, C21 1972 Broadway LLC (tenant) and Lincoln Triangle Commercial Holding Co. (landlord) entered into a lease agreement for nonresidential real property located at 1972 Broadway in New York (the lease). In lieu of a cash security deposit, an affiliated entity, Century 21 Department Stores LLC (debtor-guarantor), guaranteed the tenant's performance under the Lease. In addition, the tenant's obligations under the lease were secured by a letter of credit issued by JPMorgan Chase Bank, and funded by the debtor-guarantor.