Given the headwinds in the retail sector generally, investors in net lease retail portfolios may want to confirm that any master lease structures they utilize will be treated as unitary contracts by bankruptcy courts for purposes of assumption or rejection of the debtor/tenant’s obligations.
Landlords: Structure Master Leases to Be Treated As Unitary Contracts to Prevent ‘Cherry Picking’ of Accepted Properties
If a bankruptcy court agrees with a debtor's argument that master leases are “severable,” then the debtor may reject lower-performing locations and retain the higher-performing locations. If the master lease is properly drafted, this outcome is avoided and, if the lease in its entirety is assumed, the landlord may continue to benefit from risk-spreading across multiple properties.
By
Laura M. Kaplan
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