§ 4A.03 Concluding Comment

• Jurisdiction: United States
• Publication year: 2022

§ 4A.03 Concluding Comment

Leasing decisions are more than just credit decisions. The possibility of a particular tenant defaulting or the impact of its "going dark" (ceasing operations) on the building and other tenants should enter into the decision to lease.

Landlords should also be aware of the limits that the Bankruptcy Code places on damages and the landlord's ability to be adequately compensated for its lost income stream if a tenant defaults. Section 502 (b)(6) of the Code¹ limits damages, which include future rent for the period during which the tenant does not occupy the space, to either the greater of one year's rent or 15% of the remaining term, not to exceed one year.² Commentators have suggested that the landlord's evaluation when its tenant files bankruptcy requires that it make a two-prong analysis consisting of the general unsecured claim for pre-petition rent and a general unsecured, post-rejection claim for future rents and termination damages.

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