Business Restructuring Review | March–April 2021

In This Issue:

Tenant's Election to Retain Possession of Rejected Lease Premises Preserves Obligations Under Related Agreements -

Section 365(h) of the Bankruptcy Code provides special protection for tenants if a trustee or chapter 11 debtor-in-possession (“DIP”) rejects an unexpired lease under which the debtor was the lessor by giving the tenant the option of retaining possession of the leased premises. Although the provision clearly describes what rights a tenant has if it makes such an election, it does not unequivocally address the extent of the electing tenant’s obligations under the rejected lease or any related agreements. The U.S. Court of Appeals for the Sixth Circuit recently examined this question in EPLET, LLC v. DTE Pontiac N., LLC, 984 F.3d 493 (6th Cir. 2021). The court reversed a district court’s dismissal of environmental remediation claims asserted by a chapter 11 litigation trust against the guarantor of a tenant’s obligations under a services agreement that, together with a rejected lease, was part of an integrated transaction. According to the Sixth Circuit, by electing to retain possession of the leased premises under section 365(h), the guaranty was “likewise joined to [the tenant’s] § 365(h) election.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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