Under the prior law, a tenant which filed bankruptcy theoretically had 60 days to decide whether to assume or reject the lease. However, the courts did not uniformly enforce the 60 day requirement, and in some cases gave the tenant years to decide. During that time, of course, the owner was stuck with a bankrupt tenant which could not be evicted.

Often a tenant would try to assign the lease to a new tenant whom the landlord found undesirable. The old law permitted the bankruptcy court to strike lease restrictions on assignments, such as use restrictions and prohibitions. This forced landlords to accept tenants in a bankruptcy situation whom the landlord could have rejected under the lease terms.

The new Act addresses both concerns. The new Act requires a tenant to decide whether to assume or reject its lease within 210 days of its bankruptcy filing. Although this seven-month period seems too long to most landlords, it is a substantial improvement over the old code.

The new Act also recognizes the unique nature of shopping centers, and affords protections to landlords to maintain the proper, desirable tenant mix. Bankruptcy courts must consider (i) the tenant mix the landlord wants so as to generate customer traffic and (ii) the interdependence of the tenants in providing different types of goods and services. Any prospective assignee of a bankrupt tenant’s lease must now meet a defined standard of "adequate assurance of future performance." This means the assuming tenant or prospective assignee must provide assurances of financial condition, operating performance and maintenance of percentage rent. It must also demonstrate that the continuation or assignment of the lease will not disrupt the tenant mix and will also comply with provisions of the lease such as radius, location, use and exclusivity clauses. The new Act now prohibits the debtor from conducting a new or different business, or from assigning its lease to a tenant which would conduct its business in a manner inconsistent with the existing and permitted use of the space, or the existing tenant mix or theme of the shopping center. Should you have any questions or wish additional information, please contact Mike Garner of Stokes Lawrence, P.S. at 206-626-6000.