Adam Leitman Bailey, P.C. Protects Theater Sublease from Termination by Bankrupt Prime Tenant

By Jeffrey R. Metz

manhattan bank court 2

In a decision demonstrating how Adam Leitman Bailey, P.C. applies its real estate law expertise in the bankruptcy context, the Manhattan Bankruptcy Court held that a prime tenant in Chapter 11 could not evict its subtenant or collect use and occupancy because the sublease did not include an early termination right.

[Subtenant] is a performing arts venue at 45 Bleecker Street in Manhattan which hosts a broad range of artistic programming and private events. Based on the strength of its sublease with [prime tenant], under which it shared expenses but paid only a nominal rent, [subtenant] spent more than $1.5 million to redevelop what had been a decrepit and disused basement space, to an intimate and inviting theater with top-quality sound and lighting technology.

After [prime tenant] went into bankruptcy due to its rent arrears, it claimed in Bankruptcy Court that it had terminated the [subtenant]’s sublease and was entitled to full market rental use and occupancy payments, rather than the nominal rent payment under the sublease.

In analyzing the sublease for [subtenant], Adam Leitman Bailey, P.C. found that it gave [prime tenant] “all rights and remedies available at law or in equity,” but did not specifically provide for termination in the event of default. Tracing the history of lease termination law back to the 17th Century, the firm argued before a skeptical Bankruptcy Judge Michael Wiles that the sublease could not be terminated early absent an express clause allowing such early termination.

In a 20-page written decision, Judge Wiles accepted the firm’s arguments in full, dismissing [prime tenant]’s lease termination, use and occupancy, fraud, and lease rejection claims, without needing to reach the firm’s alternate arguments that the purported lease termination, even if permissible, was ineffective.  Most significantly for [subtenant] by avoiding the termination of the sublease, Adam Leitman Bailey, P.C. preserved [subtenant]’s right to take over occupancy of the full leased premises under a sublease consent executed by the landlord.

William J. Geller, the head of the Adam Leitman Bailey, P.C.’s Bankruptcy Practice Group, and Jeffery R. Metz, the head of the firm’s Appellate Practice Group, represented the Subtenant. Adam Leitman Bailey handled the implementation of strategy in the case.

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