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Shopping Centers Today -> May 2003
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KMART REBUFFED ON LEASE EXTENSION
BY IAN RITTER
In a victory for shopping center landlords across the United States, a federal bankruptcy judge has ruled against a motion by Kmart Corp. that would have given the bankrupt retailer four additional months to decide what to do with leases on shut stores.
Kmart, which filed for Chapter 11 in January 2002, closed 283 stores last year and says it will close 316 more this year.
The company had asked for an extension until Nov. 25 to decide whether to assume or reject the leases. But in her March 26 ruling, Judge Susan Pierson Sonderby of the U.S. Bankruptcy Court of the Northern District of Illinois in Chicago, said, “Even if the court had the authority to grant the requested relief, Kmart has not demonstrated cause for a further extension.”
Kmart now has until July 31, or until its bankruptcy reorganization plan is confirmed, whichever comes first, to decide on leases with all its landlords.
Meanwhile, an ICSC-backed bill now before Congress would limit the amount of time shopping center tenants have with regard to leases after they declare bankruptcy. The bill would allow 120 days, plus an additional 90 days if approved by a judge. Reform advocates have been trying to pass a bill since 1997.
The Kmart ruling isn’t likely to affect this bill, says Norman M. Kranzdorf, chairman of ICSC’s Bankruptcy Task Force and of Plymouth Meeting, Pa.-based Kramont Realty Trust. But it could influence future court cases, he notes.
“I believe it is going to rein in these far-ranging motions that are made, and the court will be more prone to adhere to the written word of the code,” said Kranzdorf. He likened Kmart’s request to a batter in baseball who asks an umpire for four strikes instead of three.
Kimco Realty Corp., which is marketing the closed stores for Kmart, will probably not have a problem managing the task in view of the ruling, says Kimco spokesman Scott Onufrey. But he notes that more time would not have hurt, given that the marketability of Kmart stores varies depending on their locations.
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