Being a Dallas commercial real estate landlord can come with its share of challenges. And one of those challenges is when your tenant files for bankruptcy. What do you do? Where do you turn?
It is important to understand both your rights and obligations as a landlord. The following tips can help guide you through the process:
1. The first order of business after you have discovered that your Dallas commercial real estate tenant has filed for bankruptcy is to consider whether the lease is to be assumed or rejected. The United States Bankruptcy Code requires that your tenant either assume or reject the lease within 60 days of the bankruptcy petition date. If your tenant fails to assume the lease during this time period then the lease is deemed rejected. As the landlord, you may petition the bankruptcy court to receive the answer from your tenant before the 60 days has expired, particular if you feel that you may lose another potential tenant as a result.
2. If the tenant chooses to assume the lease, you have the right, as the landlord, to monitor the bankruptcy case and make sure that the tenant remains in compliance with its debt obligations, as bankruptcy laws require that the tenant continue to perform its obligations under the lease.
3. It is vital that the landlord file its proof of claim in Chapter 7 bankruptcy cases. The proof of claim includes accrued rent, CAM charges, taxes and related fees. Filing a proof of claim is more complex in Chapter 11 cases, and will depend on whether the lease has been assumed or rejected. It is important, however, that you, as the landlord, file your proof of claim in a timely manner to ensure that the lease amount is paid.
4. You may need to submit a tenant letter of credit (in lieu of a tenant security deposit) as to avoid caps on lease rejection damages. Although the letter of credit does not produce guaranteed results, it does provide the landlord with an opportunity to the details of the lease as it is being drafted and signed. This route is often effective when dealing with larger tenants.