Mall of America Avoids Getting Stuck with Sears’ Bankruptcy Assignee

    What Happened: When Sears went bankrupt, its Mall of America (MoA) lease was taken over not by another retailer, restaurant, or amusement venture, but by Transform Leaseco LLC, a “very unshopping-mall-like” corporate entity created by Sears executives to secure control of the retailers’ many real estate assets during bankruptcy proceedings. MoA objected, contending that assigning the lease to Transform would interfere with its tenant mix. But the federal bankruptcy court approved the assignment.

Decision: The U.S. District Court reversed the ruling.

Reasoning: The lower court was right to conclude that assignment of the Sears lease to Transform didn’t violate Section 365(b)(3)(D) of the Bankruptcy Act, which requires that an assignment “not disrupt any tenant mix,” given the inclusion of other corporate tenants in the MoA mix and Transform’s agreement to honor the lease obligation banning assignment for uses not “compatible and consistent with (and detrimental, injurious or inimical to) the operation of a first-class regional shopping center.”

However, the court continued, the assignment did run afoul of Section 365(b)(3)(A), which requires assignees of a shopping center lease to provide “adequate assurance of future performance” and proof that their “financial condition and operating performance will be similar” to that of the bankruptcy debtor—that is, Sears, “at the inception of the lease,” 1989 in this case. And Transform did not and could not prove that its current financial condition and performance would be similar to that of Sears back in 1989.   

• MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holdings Corp.): 2020 U.S. Dist. LEXIS 34717, __ B.R. __, 2020 WL 953528