Does a tenant’s failure to expressly assume a commercial lease within 120 days of filing bankruptcy give its landlord the right to immediate possession of the leased premises? Yes, according to several recent court decisions. The bankrupt tenant’s landlord is entitled to immediate possession of the leased premises, without going through the time and expense of moving to lift the automatic stay and pursuing an eviction in state court, or commencing an adversary proceeding in the bankruptcy court.

For example, “The Deli Den” was leasing commercial space in south Florida when it filed a chapter 11 bankruptcy in October 2009. The Deli Den neither assumed nor rejected its commercial lease within 120 days of filing bankruptcy. The landlord filed an emergency motion seeking an order requiring its bankrupt tenant to immediately surrender the leased premises. The key question was the proper interpretation of the Bankruptcy Code at 11 U.S.C. § 365(d)(4), which states that where the bankrupt is a tenant under an unexpired lease of commercial property, that lease is “deemed rejected, and the trustee [i.e., the bankrupt tenant in a chapter 11 case] shall immediately surrender that non-residential property to the lessor, if the trustee does not assume or reject the unexpired lease by the earlier of – (i) the date that is 120 days after the date of the order for relief; or (ii) the date of the entry of an Order confirming a plan.” The landlord argued that the plain language of the statute required The Deli Den to “immediately surrender” the leased premises. The Deli Den argued that Section 365(d)(4) merely places the creditor in position to pursue remedies under state law, i.e., the landlord must still go through a formal eviction proceeding before retaking the leased premises. The bankruptcy court agreed with the landlord, and found that a majority of courts across the country also applied a plain-language interpretation of the statute: the commercial landlord is entitled to immediate possession of the premises if a debtor fails to timely accept or reject an executory lease contract within the time limits given by the Bankruptcy Code. See In re: The Deli Den, LLC, 425 B.R. 725 (Bankr. S.D. Fla.2010). Several other courts have also recently examined this question and reached the same conclusion. See, e.g., In re: GCP CT School Acquisition, LLC, 429 B.R. 817 (1st Cir. BAP 2010), In re: Jim Slemons Hawaii, Inc., Case No. 09-01802, 2010 WL 691499 (Bankr. D. Hawaii, February 2, 2010).

For more information about the bankruptcy process from a landlord’s perspective, see additional information here.