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Can you collect on commercial leases if tenants file bankruptcy?

On Behalf of | Jun 16, 2022 | Commercial Real Estate

Signing a lease with a startup or even an existing company can be a bit of a gamble. You never know if the company might go under and leave you without rental income or cause damage to your facilities that could cost thousands of dollars to repair. 

It is also possible that a tenant who owes you money could try to avoid that responsibility by filing for bankruptcy. Can you still collect unpaid rent and the rest of your rental contract when a company files for bankruptcy? 

The tenant has to make a choice about the property

In a business bankruptcy, the owner or manager of the company will have to make certain decisions. In the Chapter 7 filing, they will have to sell company property to repay creditors. In a restructuring bankruptcy, the goal may be to regain control over finances and reduce monthly payment obligations. 

In either scenario, the tenants will have to decide what happens with their commercial leases. They could ask to cancel it because they intend to close the company. They could ask to work with you so that they can retain the space and keep their business afloat. They might also try to help find a new tenant to take over the space.

If your business is willing to work with the commercial tenant, you may be able to minimize the losses you suffer from unpaid past and future rents owed when a commercial tenant files for bankruptcy. They will be able to discharge the unpaid rent that has become a debt, provided they include it in their paperwork properly. 

Learning more about your rights as a creditor owed money by a business can help you seek repayment to the extent permissible under the law.