Commercial real estate bankruptcy legislation introduced

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Commercial real estate bankruptcy legislation introduced

By Marianne Wilson - 08/06/2020

Legislation has been introduced that would make "meaningful" temporary changes to bankruptcy laws, related to commercial real estate.

The bill, introduced by Sen. Thom Tillis (R-NC) and supported by the International Council of Shopping Centers, would allow for the facilitation of commercial tenant rent deferrals and providing additional flexibility for small business tenants that file Chapter 11 bankruptcy.

“The legislation will help businesses struggling with bankruptcy to weather the storm,” ICSC president and CEO Tom McGee said. “The bill provides significant relief to small business debtors and landlords. It also reinforces what many landlords have done since spring, as well as encourage deferred deals going forward.”

Under current law, rent deferral agreements waiving some or all of the current rent to be repaid in the future can be undone if the commercial tenant later files for bankruptcy. This risk discourages such agreements from happening. Specifically, Bankruptcy Code Section 547 deems the installment payments as “preferences" and commercial landlords can be forced by the court to forfeit such payments. 

The Tillis bill would prevent this from happening, providing much-needed certainty to business landlords, as well as tenants, according to ICSC.

Additionally, the Tillis bill would allow an extra 90 days for commercial tenants in bankruptcy to decide whether to continue with current leases. And for certain small businesses, the bill would give tenants the ability to spread the payment of some post-bankruptcy rent over a longer period. The extra time would provide liquidity to small businesses, preserving jobs and businesses, noted ICSC.

 

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