Tenant Bankruptcy: Landlord and Tenants Rights

The Bankruptcy Code has provisions specific to nonresidential leases. When a tenant’s bankruptcy arises, a landlord should have a basic understanding of these provisions so he does not lose his rights.

Eviction Rights

A tenant’s bankruptcy does not prevent the landlord from evicting the tenant when the lease expires either before or during the bankruptcy. Even a tenant in bankruptcy may be better than no tenant at all, if a landlord wants to make some money, but if a landlord does not want to deal with a tenant in bankruptcy, the landlord might terminate the lease before the tenant files bankruptcy.

The tenant loses all of its rights in leased premises upon termination. If the lease is terminated before the bankruptcy filing for any reason other than the expiration, courts disagree on whether the landlord can evict the tenant without bankruptcy court approval.  The landlord could file a motion for relief from the automatic stay and ask the court for permission to evict. The motion would likely be granted because the tenant has no legal right to retain possession, and the landlord loses money from not being able to rent to someone else.

Automatic Stay and Eviction

If the landlord does not file a motion for relief from the automatic stay the landlord can only continue to evict if one of the following apples:

• There is already judgment for possession before filing bankruptcy
• Debtor is evicted for endangering property or for using illegal drugs on the property

If none of the above are present, the landlord cannot evict, unless the landlord files a motion for relief from automatic stay. Where the landlord obtained a judgment for eviction before filing bankruptcy, the landlord can proceed with the eviction, unless it is based on failure to pay rent, in which event, a debtor can request the court to reinstate the automatic stay in her/his favor.

After the Bankruptcy Has Been Filed

The landlord can not terminate the lease after bankruptcy filing for nonpayment by the tenant, even if the lease says that the bankruptcy filing is a default.  The tenant can seek an extension to pay rent in the first 60 days up to the 60th day.

The debtor-in-possession or the trustee for a tenant has 120 days to file a motion to assume the lease; otherwise, the lease is rejected.   Then tenant is required to turn over possession to the landlord.

To assume a lease, the trustee or debtor must pay all monetary defaults, compensate the landlord for any damages caused by the defaults, and provide adequate assurance of future performance.

Rinne Legal provides counseling to individuals and businesses on living trusts, bankruptcies, and loan modifications, foreclosures, alternative energy.  Call for a no charge initial consultation on Chapter 7 or 13 bankruptcy, estate planning, international business, or loan modification and foreclosure.  Follow Rinne Legal on Twitter @RinneLegal.  Become a FaceBook Fan of Rinne Legal.  These blog posts are for informational purposes only and not intended nor should be construed as legal advice.  Rinne Legal has offices in Fairfield, San Francisco, Walnut Creek. These blog posts may be considered attorney advertising in some states. Prior results described on blog posts do not guarantee similar outcomes in future cases or transactions.