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Landlords Rejoice! The Bankruptcy Code Loves You

Author: Warren Graham Author Ranking Blue | Posted: 19-04-2006 | Comments: 0 | Views: 162 | Rating:  (53) Article Popularity - Blue (?) Got a Question? Ask.
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"In the wake of the recent and very substantial changes to the nation's bankruptcy laws, the most significant beneficiaries are likely to be commercial landlords." So says Warren R. Graham, a bankruptcy lawyer with 25 years of experience, much of it representing both landlords and tenants in large Chapter 11 reorganizations.

"Most of the public attention, in the enactment of the new law, has been paid to consumer matters and credit card debt, given that the prime movers for the new legislation were consumer credit issuers," says Graham. "But many changes have been made in the area of business bankruptcies, which are profound, and which have received virtually no reportage." Much of this did not seem so important since the new law took effect in October, 2005, in the midst of a vibrant economy and explosive real estate market. "But," Graham argues, "with the potential confluence of a weakening economy and softer real estate values, the prospect for commercial lease dispositions in bankruptcy cases is likely to increase dramatically, and soon."

The new law gives a commercial tenant in bankruptcy 120 days, with a possible one-time 90 additional days, to 'assume' or 'reject' its lease. After that, unless the landlord consents, the lease reverts to the landlord. "Under prior law," said Graham, "landlords could get stuck for many months, or even years, as debtors marketed valuable leases for the benefit of their creditors, often at the expense and risk of the landlords. The uncertainty occasioned by being held 'in legal limbo' created problems for landlords wishing to sell their properties, refinance, or even, in the case of shopping centers, lease adjoining space, because of 'cross-default' and 'use-clause' provisions." This is a particularly important phenomenon in large retail Chapter 11 cases, in which hundreds, or even thousands of leases may be implicated, and the values realized by their sales often determine the success or failure of the reorganization effort.

Graham's own experience, in fact, includes the representation of one shopping center landlord, whose single lease was marketed out of three separate bankruptcies: W.T Grant, Caldor and Ames Department Stores.

According to Graham, the consensus among bankruptcy professionals is that the jury is still very much out on the benefits of the new law for issuers of consumer credit. It has, in fact, been argued that, even as those entities lobbied hard for the changes in the law, the likelihood is that their recoveries will not be materially enhanced by them. "But there is little doubt," Graham claims, "that landlords will benefit greatly by being able to rely on a swift and certain disposition of their property interests in Chapter 11 Cases. Next year's Christmas season may come earlier for retail landlords than for their retail tenants. And the role of Santa Claus may be played by the United States Congress, with bankruptcy lawyers in the supporting roles of his elves."

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Frequently Asked Questions

Our previous landlord never notified us in writing ...
By: Julia | 22-07-2008
Our previous landlord never notified us in writing about the security deposit (bank, amount and interest amount) according to ny state law.  Does this non complaince void the lease and force her to return our security deposit?

Due to an illness in my family I had to break my ...
By: jan s. | 22-07-2008
Due to an illness in my family I had to break my one year lease with my landlord. Can he sue me for the remaining months on my lease?

Free help?
By: osborn26 | 22-07-2008
I would like to know if they have free laywers for low income to help file bankruptcy?

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i was wondering if i can get refinance after i was dismissed from bankruptcy? and if i can who are some banks who might be able to help me out?

Civil Rights are lost after Bankruptcy?
By: gloria | 21-07-2008
My Company was forced into bankruptcy.  We owed money to a world bank from Denmark and they got us to sign contracts that caused us to lose every drop of sweat and every penny that my family put into work at our business.  Now they have taken all of my sons new business that he struggles to keep in business by working all day and everyday. His corporation was built way after our bankruptcy and had no connection to our folded company.  Yet they took his money that he earned with hard work and they did not even bother to check that it was all his hard work no connection or financial gain from our bankrupt company.  Why can trustees work like communist and take from Americans Victims We were already victims of big powers, Like the Corporation From Denmark. Small working class like us can not fight.  Do we have rights or are all our Civil Rights lost after Bankruptcy?? How can they attack my family members they only have to look , check  My sons accounts were from his own blood and sweat.

I live in calif. my home is currently rented. it ...
By: susan | 21-07-2008
i live in calif. my home is currently rented. it has no equity,but I have tenants paying the mortgage,so i am current. I also have about 50K in credit card dept. But I am on ss disability,and do not believe that situation will change. Will I lose my home if I file a chapter 7 bankruptcy.

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