As the commercial real estate market undergoes seismic shifts resulting from the rise of online retail, the COVID-19 pandemic, the growth of work-from-home options for employees and employers, and As the way we do business as a nation continues to evolve, businesses may find themselves in situations where their tenant or landlord has filed for bankruptcy protection. Questions then quickly arise, such as whether and how a landlord can evict a bankrupt tenant, whether a bankrupt tenant can remain a tenant and continue to occupy the premises, and how to measure the damages for a landlord in this situation, both before bankruptcy and move forward after the petition. The Bankruptcy Code and related case law deal with these points.
Under the Bankruptcy Code, a debtor has the right to choose to assume or reject enforceable contracts, such as unexpired leases for real estate. 11 USC §365. A debtor with operations in multiple locations may, if approved by the bankruptcy court, assume leases for locations where the lease is affordable (in the case of a tenant debtor) or profitable (in the case of a landlord debtor), and where it makes business sense to continue the lease. The debtor may refuse leases for locations where this is not the case.