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Law Contains Key Bankruptcy Provisions

Relevant to Retail Landlords, Tenants

Global Public Policy

January 6, 2021

The Consolidated Appropriations Act of 2021 that was signed into law by President Trump on December 27, 2020, contained specific bankruptcy provisions that are especially relevant to both retail landlords and their tenants, particularly small businesses.

At the onset of the pandemic this spring, ICSC staff and members of the Bankruptcy Task Force successfully worked with bipartisan leaders in Congress to provide input on a set of temporary but necessary changes related to real property leases to the Bankruptcy Code. The changes are also embodied in S. 4479, sponsored by Senator Thom Tillis (R-NC) and introduced in August 2020.

“Ultimately, we believe the outcome is a balanced one and will be extremely helpful in light of the current economic challenges so many in our industry are facing,” Betsy Laird, ICSC senior vice president for Global Public Policy, said. “These changes provide flexibility for small businesses in bankruptcy and encourage commercial landlords and tenants to negotiate rent deferrals without the fear of later bankruptcy-related litigation.”

The “package” of Bankruptcy Code amendments may be described as follows:

  • The proposed amendment to Section 365(d)(3) allows additional time for a Chapter 11 debtor to assume or reject leases, adding an additional 90 days to the existing 210-day deadline (120 days + 90-day extension) provided by the 2005 amendments. This amendment, lasting for two years, addresses the uncertainties in real estate and operational decisions brought on by COVID-19. It affords more time to pursue reorganization/restructuring before having to make a commitment on leases and should be viewed as pro-debtor, pro-tenant and pro-job preservation.

  • The proposed amendment to Section 365(d)(4) is a narrow amendment (also for two years) that affords small business debtors (under the new SBRA provisions of the Bankruptcy Code, commercial debtors having noncontingent, liquidated debts under $7.5M) the opportunity to defer rent coming due in the first 120 days of their bankruptcy case and repay the deferred rent over time through their bankruptcy plan. This proposed amendment expands the existing rent deferral provision of the Bankruptcy Code for the benefit of small businesses affected by COVID-19.

  • The proposed amendments to Bankruptcy Code section 547 create a temporary exemption from bankruptcy preference laws (so-called “clawback” liability for payments made outside the ordinary course of business) to facilitate and encourage rent deferral and vendor repayment agreements. These deferred payments would, under the law prior to the recent amendments, be subject to preference liability if received within 90 days of a bankruptcy filing as they represent payments that would otherwise be out of the ordinary course of business. By excluding these payments from preference exposure, landlords and vendors are encouraged to reach deferred payment arrangements with their tenants and customers without concern that, if the tenant/customer later seeks bankruptcy protection, the deferred payments would not be recaptured (the doctrine of “no good deed goes unpunished”). This amendment is balanced, encouraging deferred payment deals, for the benefit of tenants/customers, while encouraging landlord/vendor counterparties to enter into those agreements without fear of liability later.

Click here to view the bill language. Due to the size of the bill, the Government Publishing Office has not yet printed its final version. ICSC will make it available on our website at a later date. The changes to the Bankruptcy Code are in effect for two years after the date of enactment (i.e. through December 27, 2022). Rent deferrals or other accommodations covered must have been made or entered into on or after March 13, 2020.

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