My Anchor Tenant Just Filed for Bankruptcy. What Now?

As the Coronavirus pandemic continues to stretch on, and states are only slowly reopening, there has been a slew of large retailers to file for bankruptcy including J. Crew, Pier 1, Tuesday Morning and JC Penny - all of whom have large national footprints. Many shopping center owners and managers are wondering what they should prepare for as more large retailers are expected to file for Chapter 11 bankruptcy. It is first important to understand the different types of bankruptcy. The purpose of bankruptcy is to allow a retailer time to reorganize, restructure, and move forward in a way that helps them fulfill on their unfulfilled promises - typically regarding debt and underutilized retail space. In some cases, bankruptcy does lead to store closures, but this doesn‚Äôt always have to be the case. 

There are two traditional types of bankruptcy - Chapter 11 or Chapter 7 bankruptcy. Chapter 7 is a full liquidation of all assets. This means the brand isn’t planning to emerge in any state from bankruptcy. If a brand in your shopping center files for Chapter 7 bankruptcy, there is a need for more aggressive planning. Recently, however, most large brands like the ones listed above are filing for Chapter 11 bankruptcy which means they will continue to operate after their filing is complete.

If you do have a brand in your shopping center that has recently filed for bankruptcy, there are a few things you can do to make sure you are appropriately prepared.

  1. Understand what type of bankruptcy they'e filing. Chapter 11 bankruptcy has many more potential outcomes, so it is important to stay informed regarding court proceedings. If the filing is Chapter 7, they will be closing their stores. It is time to be looking at new potential tenants to take over this space.  
  2. Reach out to the brand to determine if their filing includes paying off retail spaces. At times, bankruptcy filings include restructuring debt to allow a brand to pay for their committed retail spaces. This could mean your stores are safe and will maintain the rest of their lease. 
  3. Stay up to date on announced store closures. With many Chapter 11 announcements, a brand will inform the public if store closures are imminent. If they are, it is important to research which locations are potentially part of these closures. If you state or city is on the list, you can begin to scout replacement tenants early, making outreach simpler if the time comes. 
  4. Understand your legal position to collect rent. Once a tenant files for bankruptcy, all claims to collect debts, including rent, must stop. Without permission from a court, it is illegal to try to collect debts after a bankruptcy is filed. 
  5. Understand the timing of rent petitions. Any rent not paid prior to a bankruptcy filing are considered pre-petition claims. Once a brand files for bankruptcy and stays in a retail space unpaid, a landlord can claim this rent and is considered post-petition. Post-petition claims are almost always paid, while pre-petition claims are not. 
  6. Get to know your lease rights. Once a tenant files for bankruptcy, they have 60 days to assume or reject their lease in your space. Chapter 7 implies a rejection of the lease, while Chapter 11 leaves it open to the brand. If a brand rejects the lease, courts will typically issue an immediate eviction notice. If a brand and landlord chose to sign a new lease, this could mean losing out on unpaid rent, but can also be the best way to maximize on previous losses. 
  7. Pay attention to filing deadlines. There are situations where a landlord can get out of an automatic stay and remove a tenant early. To do so requires keeping up to date of the tenants bankruptcy deadlines so they can be present at hearings. It is also important to use proper legal council to expedite this type of request with the court. 

Regardless of the outcome, bankruptcy can be a stressful process for any landlord. The best course of action is to stay involved and understand when and where evictions are possible. Many times, there are other courses of action that can result in an easier path than eviction.

If it does look like the brand is going to be closing your local store, or you want to work with legal council to have them evicted, then you should also be prepared to fill the space as quickly as possible. Retailsphere makes it easy to begin prospecting for new tenants in your area.

By digitally researching and communicating with new brands through Retailsphere, and with a clear understanding of bankruptcy deadlines for brand, you may be able to quickly transition a new tenant into your newly vacant spaces with little to no down time. 

Sign up for a no-obligation demo today and see how Retailsphere helps you stay ahead of vacancies.

This does not constitute legal advice. We recommend that you consult with legal counsel regarding any eviction process.

June 4, 2020
Barton Strawn

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