Assumption of the lease is permissible even if the terms of the lease expressly prohibit assumption. Section 365 of the Bankruptcy Code requires a debtor-tenant to meet certain criteria in order to "assume" a lease. First, and most importantly, the tenant must cure any and all existing defaults, both monetary and non-monetary. Second, the debtor-tenant must provide "adequate assurance" to the landlord that the debtor will be able to perform under the lease going forward. The tenant's obligation to cure defaults includes the payment of late charges or similar charges that arise under the lease. As discussed in section 8 below, the landlord may be able to recover attorney's fees in limited circumstances.
The Bankruptcy Code requires the tenant to demonstrate its ability to provide "adequate assurance of future performance." Though this term is not defined within the Code, it has generally been interpreted to require the tenant to demonstrate its ability to meet its financial obligations under the terms of the lease going forward.
A debtor-tenant must serve the landlord with notice of its intention to assume the lease. Tenants often list the cure amount within a motion to assume the lease. However, the Code also allows the debtor-tenant to provide notice of the Landlord's intent to assume the lease as part of the debtor's plan of reorganization. Regardless of the method the debtor selects, under either approach the landlord has only a limited amount of time to review and file an objection to the assumption of its lease and/or the proposed cure amount. If the landlord chooses to object to the assumption of its lease, it needs to file a written objection with the court.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
