Tips to Minimize Landlord's Exposure When a Commercial Tenant Files Bankruptcy

Because bankruptcy can add significant expenses and increase the time it takes to remove a delinquent tenant, landlords should not allow tenants to fall far behind on rental payments. Below are some tips on how to address the issues raised by a bankrupt tenant:

• Perform due diligence on the proposed tenant's finances, regardless of whether it is a large corporation.
• Obtain an appropriate deposit from the tenant, regardless of whether it is a large corporation or a single-owner limited liability company.
• Consider reducing the term of the lease based on the tenant's square footage vs. the size of the commercial property, meaning no extended leases that can be easily rejected in a bankruptcy and not subject to payment of the liquidated damages stated in the lease.
• Include a clause that protects the landlord in the event of late or slow rent payments.
• Include a clause to address any future bankruptcy although often times these so-called ipso facto clauses are rejected by bankruptcy courts.

What Happens When You Get Notice of a Tenant's Bankruptcy?

But, even landlords who are vigilant about selecting reliable tenants and enforcing lease provisions may find themselves on the receiving end of a bankruptcy notice.