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September 7, 2023

Bankruptcy Basics for Retail Landlords

Issue 18—"Filing Proofs of Claim in Retail Tenant Bankruptcies"

At some point, or at various points, during the pendency of a tenant bankruptcy case, a landlord will have to file one or more proofs of claim. Failure to file a proof of claim by the applicable deadline may result in the landlord not having a claim against the tenant or having to file a motion requesting that the Bankruptcy Court allow a late-filed claim—an uphill battle all landlords should seek to avoid.

A proof of claim filing deadline, referred to as a “bar date,” may be established in several ways. Many Bankruptcy Courts set the bar date to file claims arising prior to the bankruptcy filing (prepetition claims) by way of an initial notice regarding the commencement of the bankruptcy case, setting the first meeting of creditors, or both. A bar date set by an initial Bankruptcy Court notice generally will be set at 70 days following the bankruptcy filing or another fixed date as determined by the local Bankruptcy Court rules. This kind of Bankruptcy Court–set bar date is generally earlier than landlords expect in a tenant bankruptcy case; thus, it is important to carefully review all Bankruptcy Court notices for any applicable bar dates.

More often, the prepetition claims bar date will be set by a separate motion and, between the motion itself, the subsequent bar date notice, and perhaps even notice by publication in national newspapers, the bar date should be well publicized and widely known. A bar date for filing lease rejection damages also may be set in the bar date order or in the order rejecting a lease (which may also be the order confirming the tenant’s plan of reorganization). A bar date for filing lease rejection damages is typically 30 days following the later of the effective rejection of a lease and entry of the lease rejection order. Administrative expense claim bar dates for postpetition rent claims may be set by a separate motion, the motion to set the initial bar date, or a plan confirmation order. 

It is not unusual for a landlord to file multiple claims with respect to multiple applicable bar dates during a tenant’s bankruptcy case: 

  • An initial proof of claim for prepetition rent filed before the bar date 
  • A rejection damages claim filed by a rejection bar date 
  • One or more administrative expense claims for postpetition rent filed by the administrative claim bar date

The initial proof of claim bar date requires the filing of: 

  • Prepetition claims
  • In certain cases, lease rejection damages for those leases rejected early in the bankruptcy case

Administrative expense claims bar dates require the filing of either an application for payment or proof of claim and may include pro rata rents for the balance of the month on and after the petition date. Finally, lease rejection damages bar dates often require a filing for the total of prepetition claims plus lease rejection damages calculated under 11 USC Section 502(b)(6). Lease rejection damages are equal to one of the following amounts based on the remaining term of the rejected lease: 

  • If less than one year, the total balance of the remaining rents payable under the rejected lease 
  • If equal to or greater than one year, the greater of: 
    • The rents payable for one year
    • The rents payable for fifteen percent (15%) of the balance of the term of the rejected lease. 

There are many nuances to the calculation of lease rejection damages; thus, landlords should seek the advice of counsel.

Claims are filed either as a paper filing or electronic submission to the Bankruptcy Court or third-party claims agent and should be filed in accordance with the applicable order. A filed claim should include the documentation required by the bar date order. If there is no bar date order or the order is silent on the subject, the claim should include a brief statement regarding the claim, including the tenant’s store number if available, an explanation or summary of any attachments, a detailed summary of outstanding accounts receivable, calculations of rejection damages (if applicable), a copy of the lease and any other writing upon which the claim is based, including any amendments, and a copy of the lease rejection order (if applicable).

In the next issue of Bankruptcy Basics for Retail Landlords, we will cover the final steps of a typical Chapter 11 retail bankruptcy case: the plan and the disclosure statement.

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