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01.28.2021 Legal News

Temporary Bankruptcy Amendments Affecting Commercial Landlords Under the Consolidated Appropriations Act of 2021

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act of 2021 (the “Act”). The Act enhances and expands certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and temporarily amends the Bankruptcy Code in several respects. The most noteworthy bankruptcy-related amendments affecting the rights of commercial landlords are summarized below:

Preference Exemption for Landlords and Vendors: The Act amends Section 547 of the Bankruptcy Code to prohibit debtors-in-possession and trustees from avoiding payments made by a debtor during the preference period for “covered rental arrearages” and “covered supplier arrearages.” To qualify for the exemption, (a) the debtor and the counterparty must have entered into a lease or executory contract before the filing; (b) they must have amended the lease or contract after March 13, 2020; and (c) the amendment must have deferred or postponed payments otherwise due under the lease or contract. The preference exemption will not apply to payments made on account of interest, fees or penalties imposed by any post-March 13, 2020 amendment. This amendment sunsets on December 27, 2022.

Extension of Time to Assume or Reject Unexpired Leases: The Act amends Section 365(d)(4)(A) of the Bankruptcy Code to allow debtors-in-possession and trustees an additional 90 days to assume or reject unexpired non-residential real property leases, for a total of 210 days following the petition date. The court can extend this period for an additional 90 days upon a motion for cause. This means that debtors-in-possession and trustees can have up to 300 days to decide whether to assume or reject non-residential real property leases. This amendment applies to cases under all chapters, and sunsets on December 27, 2022.

Time for Performance Extension Under Subchapter V: The Act amends Section 365(d)(3) of the Bankruptcy Code to allow courts to extend a Subchapter V small business debtor’s time to perform under an unexpired lease of non-residential real property by an additional 60 days “if the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the [COVID-19] pandemic . . . .” Deferred obligations that remain unpaid shall be treated as administrative expenses. This amendment applies only to cases commenced under Subchapter V and sunsets on December 27, 2022.

H.R. 133 (116th): H.R. 133: Consolidated Appropriations Act, 2021

If you have any questions on how these regulations affect your business, reach out to any of the contacts below.