Protecting Yourself When Bankrupt Tenant Suggests Assignee

Unfortunately, tenant bankruptcies are something you’ll probably have to face if you own an office building or shopping center long enough. You need to take every step possible to protect yourself. The good news for shopping center owners is that bankruptcy laws give you more assignment protection than they give to owners of other types of properties. That is, you’re protected from an assignment that disrupts the tenant mix at your center. You can employ two strategies to put yourself in the best position to benefit from this protection.

First, require the tenant to acknowledge in the lease that the tenant mix is important to you and to the operation of the center, and have the tenant agree that it won’t assign the lease to anyone that would negatively affect this synergy. To do this, add the following language to your lease:

Model Lease Language

Tenant hereby acknowledges that the tenant mix of the Shopping Center is important to Landlord and to the operation of the Shopping Center. Accordingly, Tenant agrees that it shall not assign the Lease to any party that would have an adverse impact on the tenant mix in the Shopping Center.

Next, point out in the lease that you can deny your consent to an assignment if the proposed assignee would negatively affect the tenant mix at your center. To do this, add the following language to the assignment clause where it lists conditions for reasonably denying consent:

Model Lease Language

(x)        The proposed use to be made of the Premises would have an adverse impact on the tenant mix in the Shopping Center.

There’s no guarantee that these strategies will definitely influence a bankruptcy court’s decision on who’s an acceptable assignee, but including them in the lease can give you some control over the situation.