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Borders Bankruptcy May Pose Difficult Legal Issues for Landlords

February 16, 2011

Today's announcement that the Ann Arbor-based Borders Bookstore filed for bankruptcy protection in New York comes as no surprise, especially to corporate retail landlords.  The who's who list of Grade A tenants that have filed since 2008 (KB Toys, Blockbuster, Circuit City, Hollywood Video, Mervyns) has forced landlords to brush up on their bankruptcy law.  Borders announced as part of its filing its intent to close up to 30% of its 600 stores nationwide, with some closings happening as early as this weekend.  The filing will have significant effect on parties that support Borders' business, including publishers, trade vendors and, most importantly, landlords.  Here are some of the basics that can apply to a corporate landlord when a retail tenant like Borders files for bankruptcy:

These are just some of the basic issues that can re-define the landlord/tenant relationship once a tenant files bankruptcy.  Even more troublesome is the trend in recent mega-retail cases of debtors imposing operating procedures and rules as part of their "first-day orders" that significantly change the rights and allowances of landlords.  Corporate landlords are often blitzed with first-day papers at the onset of a retail bankruptcy and do not engage in the appropriate due diligence to ascertain whether their rights have been impacted.  By the time they receive a notice from the retail debtor of the rejection of their lease, the landlord's rights may have been severely compromised by orders entered by the bankruptcy court months ago.

Each retail tenant bankruptcy poses different issues.  Landlords need to retain experienced bankruptcy counsel to analyze their rights and risks in a tenant's bankruptcy.

For more information, please contact:

Jonathan S. Green