Chapter 27 - § 27.8 • EXECUTORY CONTRACTS AND UNEXPIRED LEASES

• Jurisdiction: Colorado

§ 27.8 • EXECUTORY CONTRACTS AND UNEXPIRED LEASES

§ 27.8.1—In General

With certain exceptions, the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor.¹⁷³ No limitations or conditions on assumption are imposed by 11 U.S.C. § 365(a). The question for the court is whether the assumption represents a sound business judgment and will not be prejudicial to the interest of the creditors.¹⁷⁴

A contract supplemented by a state court order for specific performance is not an executory contract.¹⁷⁵ A condominium declaration is not an executory contract, which may be rejected by a condominium owner who retains ownership of the condominium unit.¹⁷⁶

The term "lease of real property" includes a rental agreement to use real property.¹⁷⁷ A lease cannot be rejected without court approval.¹⁷⁸ The rejection of a lease does not have the conclusive effect of terminating the lease. At a minimum, a nondebtor lessor has the option of treating a lease which has been rejected as not having been terminated. While the election to do so may affect the lessor's ability to make a claim against the estate, the option is with the lessor.¹⁷⁹

If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume the contract or lease unless, at the time of the assumption of the contract or lease, the trustee cures, or provides adequate assurance that the trustee will promptly cure, the default, subject to certain conditions relating to default of nonmonetary obligations; compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to the contract or lease, for any actual pecuniary loss to such party resulting from the default; and provide adequate assurance of future performance under the contract or lease.¹⁸⁰ It is not necessary that a notice of default have been given before the filing of the petition.¹⁸¹ The foregoing does not apply to a default that is a breach of a provision relating to the insolvency or financial condition of the debtor at any time before the closing of the case, the commencement of a case in bankruptcy, the appointment or taking possession by a trustee in bankruptcy or a custodian before such commencement, or the satisfaction of any penalty rate or provision relating to a default arising from a failure by the debtor to perform nonmonetary obligations under the executory contract or unexpired lease.¹⁸² If there has been a default in an unexpired lease other than a default of the kind just mentioned, the trustee may not require a lessor to provide services or supplies incidental to the lease before assumption of the lease unless the lessor is compensated under the terms of the lease for any services and supplied provided under the lease before assumption of the lease.¹⁸³

The trustee may not assume or assign an executory contract or unexpired lease of the debtor, whether or not the contract or lease prohibits or restricts assignment of rights or delegation of duties, if applicable law excuses a party other than the debtor to the contract or lease from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties and the party does not consent to the assumption or assignment;¹⁸⁴ or, the lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief.¹⁸⁵

With certain exceptions, the trustee must timely perform all the obligations of the debtor arising from and after the order for relief under an unexpired lease of nonresidential property, until the lease is assumed or rejected.¹⁸⁶ Under § 365(d)(3), the bankruptcy court may set the effective date of rejection at least as early as the filing date of the motion to reject.¹⁸⁷

§ 27.8.2—Time for Assumption or Rejection

In a case under Chapter 7, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property of the debtor within 60 days after the order for relief, or within such additional time as the court for cause, within the 60-day period, fixes, then the contract or lease is deemed rejected.¹⁸⁸ In a case under Chapter 9, 11, 12, or 13, the trustee may assume or reject an executory contract or unexpired lease of residential real property at any time before the confirmation of a plan but the court, on the request of a party to the contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject the contract or lease.¹⁸⁹

If the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee by the earlier of 120 days after the date of the order for relief or the date of the entry of an order confirming a plan, then the lease is deemed rejected, and the trustee must immediately surrender the nonresidential real property to the lessor.¹⁹⁰

§ 27.8.3—Termination or Modification of Executory Contract or...