Seventh Circuit Holds That Termination of a Commercial Lease Prior to Tenant’s Bankruptcy May be an “Avoidable Transfer”

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On March 11, 2016, the US Court of Appeals for the Seventh Circuit (the “Court”) ruled that a termination of lease that occurred prior to the tenant’s bankruptcy may be an “avoidable transfer” under title 11 of the United States Code (the “Bankruptcy Code”), thereby allowing the bankruptcy estate to recover the value of the lease from the landlord.

Background and Applicable Statutes -

Prior to filing bankruptcy, Great Lakes Quick Lube LP (the “Debtor”) leased more than 100 oil-change stores. Two of those leases were with T.D. Investments I, LLP (the “Landlord”). Fifty-two days before it filed bankruptcy, the Debtor agreed with the Landlord to terminate the two leases early, even though the leased stores were profitable.

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