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Shopping Centers Today -> April 2003
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BANKRUPTCY BACK IN CONGRESS
BY IAN RITTER
Congress is once again considering a bankruptcy reform bill, an ICSC-backed measure that supporters have repeatedly tried to pass since 1997.
The proposal would limit the amount of time shopping center tenants have to assume or reject a lease after declaring bankruptcy. It would also prevent bankruptcy courts from leasing the spaces of bankrupt businesses to tenants that landlords object to.
The bill was introduced in late February by House Judiciary Committee Chairman F. James Sensenbrenner Jr., R-Wis. At press time Sen. Chuck Grassley, R-Iowa, was expected to introduce the Senate version.
A similar bill was killed last year when Democrats inserted language unacceptable to some Republican legislators that would have kept anti-abortion protesters from seeking bankruptcy protection from the burden of court-imposed fines. Sen. Charles Schumer, D-N.Y., was responsible for inserting the abortion-issue language after the bill had made it out of the House. So far, this proposal does not contain that language.
This bill, like the last one, limits the time for lease assumption or rejection following a bankruptcy filing to 120 days plus an additional 90 days if approved by a judge. Currently, tenants have 60 days to decide, but a judge can extend the time period indefinitely, preventing landlords from signing another tenant.
Landlords assert that some chains abuse bankruptcy protection to get out of what they consider unfavorable leases. Center owners are often left with dark spaces that can’t be filled.
In addition, landlords are particularly concerned that they have little or no veto power when bankrupt tenants sometimes sublease their spaces to businesses that are not appropriate to a center or are not compatible with a center’s other retailers.
ICSC members have also expressed concern about retailers who abuse bankruptcy to get out of their leases.
“An increasing number of financially healthy companies have been filing for bankruptcy protection as a business tool,” notes an ICSC position paper on the issue. “Because businesses do not have to be insolvent to declare bankruptcy, more and more solvent companies are reorganizing under Chapter 11 of the Bankruptcy Code in order to restructure themselves and shed unprofitable stores.”
For years bankruptcy has been one of the key issues at the annual ICSC Congressional Contacts Meeting in Washington, D.C., where members lobby Congressional officials. They did so again this year.
“It shows that it is not dead, and there is still plenty of hope in getting it passed,” said Norman M. Kranzdorf, president of Plymouth Meeting, Pa.-based Kramont Realty Trust, which owns and operates neighborhood and community centers. As chairman of ICSC’s Bankruptcy Task Force, Kranzdorf has led successive attempts to pass bankruptcy reform. “It shows that Congress has not forgotten us and that there are plenty of backers. Things are moving, and we’re pleased.”
The shopping center vacancy question represents only a few lines of the bill, the majority of which covers personal bankruptcy and other issues not of direct interest to the retail real estate industry.
In the past ICSC has considered pushing for a separate bill that exclusively addresses retail landlord concerns, but decided against it, said Wayne Mehlman, ICSC’s director of economic relations, so that these issues would not become the focus of a struggle inside and outside Congress.
“Our best strategy is to keep it as part of the overall bill,” Mehlman said. “Right now we’re tucked into a huge bill.”
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