Insight

Why rent is such a contentious issue in bankruptcy during the pandemic

December 8, 2020

Rent has presented a complicated puzzle during the pandemic for numerous landlords and tenants, and the solutions—inside and outside of Chapter 11—have been unconventional.

As foot traffic evaporated due to restrictions prompted by health and safety regulations, and revenue fell precipitously as demand declined, consumer-facing storefront businesses struggled to make rent payments as early as April, the first full month of closures in several U.S. states. Retailers, restaurants, gyms, and similar establishments have, of course, been the worst hit. According to a National Retail Federation survey,1 less than one-third of retailers paid at least 75% of June rent. Although 73% of retailers are expecting to pay back at least half of what they owe, more than one in three are seeking some sort of assistance to cover the June-to-August period.

The negotiations between landlord and tenant are complicated. Rent deferrals or abatements cause ripple effects in the finances of not only the landlord but also in those of the landlord’s lenders and investors, and the specter of Chapter 11 only complicates matters. Indeed, a number of deals cut before a bankruptcy filing may be revisited or completely abandoned in Bankruptcy Courts over the next few months.

Download the November/December issue of TMA’s Journal of Corporate Renewal to read the full article from AlixPartners Managing Director Kate McGlynn and Director Rob Winning analyzing how landlords and tenants have navigated rent obligations in bankruptcy during the COVID-19 pandemic.

 


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