Subject: Landlords: Pick your battles wisely! Change your lease provisions accordingly.
Landlords Pick your Battles Wisely.
The recent case of In re Hawkeye Entertainment LLC, 19-12102 (Bankr. C.D. Cal. Feb. 19, 2021). illustrates the danger in disputing tenant rights after a bankruptcy filing.
In essence: Tenant/Debtor defaults under commercial lease where the tenant also resides on the premises. Landlord seeks to evict. Tenant files bankruptcy and seeks to assume (continue) the lease and avoid the default. Landlord opposes and they fight it out. Tenant/Debtor wins and counsel for the Debtor asks for fees and costs in defending (Spoiler Alert: Unbelievable amount of fees awarded, specified below) and the court awards the Tenant/Debtor fees incurred in defending.
The court in awarding the fees analyzed California “fee shifting” provisions under contract law i.e. prevailing party wins unless the contract provides otherwise. The court then found that the whether or not the Debtor/Tenant was the prevailing party, the lease allowed recovery of fees in any action relating to lease enforcement. Opposing the right to assume the lease was deemed a covered action. The Court then awarded $606,000 to the Debtor/Tenant.
Landlords: Pick your battles wisely! Change your lease provisions accordingly.
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