Do You Have a Pre‑Bankruptcy Playbook?

When an office or industrial tenant starts missing rental payments, landlords, investors and leasing teams hold their strongest leverage before a bankruptcy petition is filed. Once a filing occurs, the automatic stay freezes key remedies, and any surviving lease becomes property of the estate, shifting control to the bankruptcy court and the tenant-debtor. A disciplined prefiling playbook can protect cash flow, speed re-tenanting and preserve asset value.

What really changes when bankruptcy is filed?

Understanding what happens on Day 1 of a bankruptcy helps frame pre-petition decisions.

Automatic stay: The moment a petition is filed, most collection and eviction activity must stop unless authorized by the bankruptcy court. The stay protects both contractual lease rights and the tenant’s possession. Intentional violations can result in damages and attorneys’ fees.

Ipso facto clauses: Lease provisions that treat bankruptcy itself as a default are known as ipso facto (i.e., by the very fact or act) and are generally unenforceable. Boilerplate “bankruptcy = default” language will not save a weak pre-petition strategy.

Ongoing obligations: To keep the space, a debtor must pay post-petition rent on time and cure monetary and curable nonmonetary defaults to assume the lease. Courts vary on how quickly cure must occur, but delays are not indefinite. Charges that accrued pre-petition—such as year-end reconciliations billed later—are usually treated as pre-petition debt while true post-petition charges qualify as administrative expenses.

Guarantors: The automatic stay typically does not protect nondebtor guarantors. Personal or affiliate guarantees remain a significant pressure point even after a tenant files.

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How Chapter 11 Tenants Use the Lease

In Chapter 11, the lease becomes both an operating asset and a bargaining chip.

Assume, assign, or reject. A tenant generally has 120 days (often extendable to 210 days) to decide whether to assume or assume and assign the lease. If it fails to act, the lease is deemed rejected and terminated.

Economics of rejection. After rejection, the landlord holds a capped damages claim — generally the greater of one year’s rent or 15% of the remaining term, not to exceed two years. This claim sits behind administrative expenses, and recoveries are often modest.

Assumption and assignment. To assume the lease, the tenant must cure defaults and provide adequate assurance of future performance. Even restrictive assignment provisions may be overridden if the assignee can perform.

Market leverage. Tenants are most likely to assume or assign leases that are at or below market. Above-market leases invite rejection threats aimed at forcing concessions, particularly where the landlord faces capped claims and downtime risk.

Pre-petition moves that matter

Make a deliberate termination decision. If defaults have ripened and a filing appears imminent, landlords should decide whether to terminate the lease pre-petition. A properly terminated lease cannot be assumed or assigned, often allowing faster recovery of possession post-petition. Although future rent claims are forfeited, termination may avoid months of court oversight and assignment disputes— especially when the space is readily re-tenantable or redevelopment is planned.

If the lease remains in effect, protect administrative priority. When termination is not pursued, the goal becomes maximizing administrative priority for post-petition obligations. That requires clean accounting before the filing: track post-petition rent and “stub rent” in real time. and clearly segregate pre-petition accruals from true post-petition charges.

Standardized ledgers and invoicing templates can make these claims easier to enforce.

• Treat the default file as trial ready. Assumption requires cure of defaults and compensation for related monetary losses, often including attorneys’ fees. Well-organized documentation strengthens leverage and should include:

• Updated default notices and cure demands.
• Itemized balances.
• Evidence of operational breaches that must be cured.

Strong files translate into better cure payments and negotiating power.

Use guarantors to create leverage. Because guarantors are typically not protected by the automatic stay, targeted demands or litigation can drive earlier resolution. Guaranty pressure can support a consensual assumption with full cure or an orderly surrender that limits downtime. Having standardized guaranty review and demand packages makes this a repeatable tactic.

Be ready to seek stay relief. If post-petition rent is missed, landlords should be prepared to move quickly for stay relief or to compel assumption or rejection. Courts often take weeks to rule, and delay equals unpaid occupancy. Preparing draft motions and approval workflows in advance allows prompt action and sends a clear message: Pay for the space or surrender it.

Align remedies with the business plan. Many leases allow termination of the tenant’s possession while keeping the lease in force. That preserves future rent claims but leaves the lease as an estate asset if bankruptcy follows. Full termination cuts off future rent but eliminates assumption risk and may accelerate retenanting. The right choice depends on market conditions, leasing prospects, and the tenant’s likely bankruptcy strategy.

A practical checklist

When an office or industrial tenant shows signs of distress:

• Assess timing: Evaluate termination versus possession-only remedies in light of leasing prospects.

• Confirm cure windows: Ensure notice-and-cure periods have run.

• Tighten evidence: Update default letters, ledgers, and operational documentation.

• Review guaranties: Prepare demand packages and litigation options.

• Clean up accounting: Separate pre- and post-petition charges and prepare post-petition invoicing.

• Ready the motion: Have stay-relief papers drafted in advance.

Bankruptcy tilts the field toward tenants, but a focused prebankruptcy strategy allows landlords and asset managers to reclaim ground. By choosing remedies strategically, documenting defaults carefully, protecting administrative priority, and using guaranties effectively, landlords can shorten timelines, reduce carrying costs, and maintain control over outcomes.

C. Knox Withers is a partner at Arnall Golden Gregory LLP and practices in the area of business litigation and real estate litigation.