A commercial landlord is met with a dilemma when a tenant goes bankrupt. The problems are amplified when the tenant’s bankruptcy is in an out-of-state bankruptcy court.

Should the landlord immediately engage bankruptcy professionals in the jurisdiction where the case was filed? The cost of doing so is immediate and real, but the results are uncertain. The approach is safe, but the cost/benefit ratio can be sorry.

On the other hand, a landlord who just takes a “wait and see” approach is likely to be too far “behind the curve” to act effectively when events call for action. This approach is cheap, but foolhardy.

A landlord’s best response lies in the middle ground.

When a tenant goes bankrupt, landlord first needs to gather, analyze and monitor information. The information will inform the landlord’s next response. The information comes from three sources: (1) Lease Information; (2) Bankruptcy Information; and (3) Premises Information.

1. Lease Information:

Lease information needs to be accessed, analyzed and reduced to those factors having particular relevance in bankruptcy. This step produces a fixed database with a relatively long useful life.

Commercial leases are long. Some landlords keep lease information on a database organized to allow for quick tenant bankruptcy analysis. However, often this database omits terms having consequences in a tenant’s bankruptcy. For this reason, the assessment of lease terms must be conducted as soon as possible after the bankruptcy filing. The lease terms and their consequences in bankruptcy need to be identified, organized and preserved for ready reference. We will review the lease documents and extract (or confirm) the data and organize it for a fixed fee.

Because lease documents are continually being referred to and provided to various parties in the bankruptcy proceedings, we provide a secure site to store that information (along with Docket Information and Premises Information described elsewhere), for a low monthly charge.

Landlord’s lease information typically comes from three of landlord’s files: (1) the lease file; (2) the correspondence file; and (3) the accounting file.

Information obtained from the lease file includes information extracted from the lease itself, amendments, assignments, subleases and mortgagee information such as lien waivers, subordination agreements and the like.

The landlord’s correspondence file includes tenant estoppel letters, holdover information, notices as to change of address, etc. from which extracts are made.

The accounting files most heavily drawn from are the accounts receivable ledger and sources of information on the existence, amount and status of any security deposits. This information will also be available for use in connection with an optional Potential Preference Liability Analysis available for a fixed fee and described at www.bankruptcypreference.com.

Landlord’s lease information typically comes from three of landlord’s files: (1) the lease file; (2) the correspondence file; and (3) the accounting file.

Information obtained from the lease file includes information extracted from the lease itself, amendments, assignments, subleases and mortgagee information such as lien waivers, subordination agreements and the like.

The landlord’s correspondence file includes tenant estoppel letters, holdover information, notices as to change of address, etc. from which extracts are made.

The accounting files most heavily drawn from are the accounts receivable ledger and sources of information on the existence, amount and status of any security deposits. This information will also be available for use in connection with an optional Potential Preference Liability Analysis available for a fixed fee and described at www.bankruptcypreference.com.

2. Bankruptcy Docket Information.

The bankruptcy information will come from the bankruptcy docket. Often the most critical information is contained in the First Day Motions and accompanying supporting documentation.

While there are exceptions and situations can change after the First Day Motions, often this first day motion material will give a good indication of the anticipated direction of the bankruptcy.

3. Premises Information.

Premises information is the information about the rental market, location and condition of the leased premises. For example, if the rental rates have deteriorated since the signing of the lease, landlord might expect that the tenant will try and renegotiate the lease as a condition to its assumption or assumption/assignment. Similarly, if the facility is no longer in a location attractive for the bankrupt tenant’s ongoing business, the likelihood of rejection will be increased.

It is important to collect, organize and assess premises information as soon as possible after the bankruptcy filing. Going back and trying to pull together that information in the midst of negotiations will hamper the development or implementation of a negotiation strategy.