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Commercial Lease Assumption Under Chapter 11 Bankruptcy

By Paul A. Rubin and Hanh V. Huynh
August 01, 2022

The Bankruptcy Code provides a Chapter 11 debtor a powerful commercial lease tool to aid its restructuring efforts. A debtor may assume valuable real estate leases, and reject onerous ones. As explained below, a debtor's time to assume commercial leases under which it is a lessee is limited to either 210 or 300 days from the date of the bankruptcy filing, unless the landlord consents to further extensions. The Bankruptcy Code further provides that a debtor's failure to assume a commercial lease before expiration of this time limit results in the lease being "deemed rejected," requiring the debtor to surrender immediately possession of the leases premises.

Given the potentially harsh consequence of failing to timely assume a vital lease, a Chapter 11 debtor must be vigilant to avoid a forfeiture. It is important to know, however, that all might not be lost even if the debtor misses this deadline. The Bankruptcy Code allows a debtor to assume an executory contract at any time up to confirmation of a plan of reorganization. There is case law supporting the proposition that separate lease agreements and contracts executed as part of a single, integrated transaction should be construed as a single agreement so the lease may be assumed even if the Bankruptcy Code's shorter deadlines for assumption and rejection of commercial leases has expired. Accordingly, a debtor may have until plan confirmation to assume a commercial lease that was signed as part of a single integrated agreement that includes other executory contracts.

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