Tenants in Bankruptcy: Landlord’s Ability to Draw on Letter of Credit May Turn on Notice Requirements in Lease
The economic fallout from the COVID-19 pandemic has been particularly acute for commercial landlords. As retail and other tenants fall further behind on rent and other obligations, lessors are finding themselves drawn into more and more Chapter 11 bankruptcy cases. Yet, while it may not always feel that way to them, landlords actually have it better than most creditors in bankruptcy. Section 365 offers an array of protections to lessors of non-residential real property that other stakeholders do not enjoy, and most commercial leases are backed by some form of cash or other security deposit.