Bankruptcy may be on the rise. Make sure you are prepared now for tenant failures.

1. Bankruptcy in a Bull Market:
What Commercial Landlords Should Do
Now to Prepare For Future Tenant
Failures
Ken Hennesay
Ted Fates
Restructuring, Insolvency, and Bankruptcy Group
Allen Matkins Leck Gamble Mallory & Natsis LLP
Allen Matkins

2. This presentation contains general information only and Allen
Matkins is not, by means of this presentation, rendering legal,
tax or other professional advice on any specific matter. This
presentation is not a substitute for such advice. The
information in this presentation is derived from relevant
statutes, rules, and certain reported case law. Before making
any specific decision or taking any action that may affect your
business, you should contact us or otherwise seek appropriate
professional advice.

3. Planning Ahead
 Bankruptcy may be coming back
• Limited general economic growth
• Announced end to QE
• “Extend & Pretend” salve for distress may
be ending, too
• Hike in real interest rates may spark new
bankruptcies (esp. retail)
3 Allen Matkins

4. Preparing for Tenant Failures
 Monitor financials, other reports required
by lease
 Know your default provisions, cure rights
& cure periods
 Avoid pattern / practice of delay
 Document all defaults
 Consider bk possibility at first sign of
distress
 Know triggers for applying security deposit
/ draw on letter of credit

5. Planning for Tenant Failures
 Identify cause of the default
 Can you work with the tenant to resolve?
 Is tenant best option for the space?
 Determine your goals
• Cure default
• Modify lease
• Terminate lease

6. Preparing for Tenant Failures
 Move process forward as far as possible
to limit bk risk
• Assuming lease over objection
• Each step gives you more leverage
 Pursue third party sources of recovery
• Draw LOC
• Action against guarantor

7. Preparing for Tenant Failures
 Lease mods, subleases, consensual
terminations have bk implications
• Preserve consequences of default for
maximum leverage in bk
• Structure to avoid bk pitfalls (avoidance,
double discount)

8. Preparing for Tenant Failures
 Recurring issues in lease mods followed
by bankruptcy
• Security Deposit / Letter of Credit
• Rent abatement
• Termination payment
• Term / space reduction

9. Reacting to Tenant Bankruptcy
 Decide your goals immediately
 Streamline decision process
 Be careful what you say to tenant about
your goals
 Be careful what you say to third parties
about your goals, rights, and bk outcome

10. Reacting to Tenant Bankruptcy
 Immediate action items
• DIP Financing – lien on leases?
• Quick sale, assignment
• Retail GOB sales – know lease, laws,
REA restrictions
• Rejection / surrender

11. Reacting to Tenant Bankruptcy
 Monitor debtor’s performance closely
 Preferred remedies if debtor defaults
 What cure required if lease assumed?
 What AAFP required if lease assumed?
 What does surrender entail if lease
rejected?