Now What?
Sep 1, 2008 12:00 PM, By Kerri Linden
A landlord can be better served if it works with a retailer to assign its lease to another tenant. If that happens, the new tenant becomes liable for any damages owed. “As part of the sale of the lease in bankruptcy, the landlord should be made whole, and shouldn't be out any money,” says Dolan.
“If the lease is assigned to someone else, it has to have landlord approval, and the tenant does have to cure all defaults, and provide adequate assurance of future performance,” he adds.
The economy has also changed the patterns of litigation, Scanlon says. Landlords, through increased vigilance, are attempting to prevent litigation before the situation can arise. Litigation is not any different now than in a normal climate, if the landlord brings up damages, but it's now framed differently due to the economic situation,” she says. “Any landlord who agrees to a lease termination without knowing who is going to pay rent is in trouble.”
The credit crunch has dried up the liquidity of many retailers, and with no credit facilities or private buyers to stand behind for support, some see no avenue besides bankruptcy. “Private equity has changed quite a bit,” Graiser said. “They don't have the kind of financing for acquisitions anymore because of the credit crunch; a lot of it has dried up, so they're not jumping into retail.” Retailers like Shoe Pavilion, he noted, saw their financing dry up, and with no liquidity, Chapter 11 was the only solution.
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