What Happens if My Commercial Tenant Files for Bankruptcy?
As a commercial landlord, you may run into a situation where one of your tenants files for bankruptcy protection. This action could have major ramifications on your rights as a landlord. You need to know how to protect yourself, your business and your legal rights. If your commercial tenant has recently filed for bankruptcy protection, or you believe there is a risk of it in the near future, please contact an experienced West Palm Beach landlord-tenant attorney for immediate legal assistance.
A Tenant Bankruptcy Could Alter Your Rights
Chapter 11 bankruptcy gives the filing business an opportunity to reorganize their legal obligations. Most often, we think about bankruptcy allowing business to alter their debt obligations. However, Chapter 11 actually allows businesses to restructure many different contract obligations, including commercial leases. A tenant bankruptcy will usually have an impact on your landlord rights:
- Eviction rights can be restricted: Oftentimes, when filing for bankruptcy protection, commercial tenants will owe rent from previous months. During the bankruptcy process, backdated rent obligations are put on hold. This means that you will generally not be able to evict a tenant because of backdated rent, during the bankruptcy process. It is also important to note that you are not allowed to evict a tenant simply because they filed for bankruptcy protection. However, if that tenant elects to stay in your property during the bankruptcy process, they must keep paying rent. While overdue rent obligations are temporarily put on hold, any additional rent must be paid on time or you can take legal action.
- The tenant has the choice: Your tenant generally gets to decide what happens to the commercial lease moving forward. The tenant can either accept the lease, reject the lease, or attempt to assign the lease to a third party. If the tenant accepts the lease. that means that the landlord-tenant relationship will continue to exist, on the same terms. To do this, the tenant must prove to the court that they can meet all future rent obligations, and that they can take care of any backdated obligations. If the tenant rejects the lease, the landlord-tenant relationship will likely be severed. The tenant must vacate the premises and any remaining backdated rent obligations become unsecured debt for the purposes of the bankruptcy process. Finally, in some cases, the tenant can assign their lease over to a third party. This usually occurs when the lease terms are favorable towards the tenant. In this situation, the new tenant must prove to the court that they can meet the terms of the lease, and any overdue rent must also be satisfied.
You Can Protect Yourself
It is clear that the bankruptcy process grants many new rights to a filing business. This puts pressure on commercial landlords to remain vigilant. The best thing you can do is to take early action, ideally before the bankruptcy process is even initiated. Specifically you should:
- Watch for past due rent: Do not allow overdue obligations linger. Once your commercial tenant enters bankruptcy, it will be much more difficult to recover the money you are owed. As soon a commercial tenant falls behind on the rent, you should take appropriate action.
- Know the process: If a tenant enters the bankruptcy process, you should contact an experienced landlord-tenant attorney who can help protect you. You need to pay attention to all deadlines governing your lease. Your attorney can follow your tenant’s case and help you understand their future plans and how it will impact your interests.
Contact An Experienced West Palm Beach Landlord-Tenant Attorney
At Pike & Lustig, LLP, our experienced team works hard to protect the rights of Florida landlords. If you have any questions, or concerns, please contact our West Palm Beach office today for additional information.
