11 U.S.C. § 365 : US Code - Section 365: Executory contracts and unexpired leases

Search 11 U.S.C. § 365 : US Code - Section 365: Executory contracts and unexpired leases

(a) Except as provided in sections 765 and 766 of this title and
in subsections (b), (c), and (d) of this section, the trustee,
subject to the court's approval, may assume or reject any executory
contract or unexpired lease of the debtor.
(b)(1) If there has been a default in an executory contract or
unexpired lease of the debtor, the trustee may not assume such
contract or lease unless, at the time of assumption of such
contract or lease, the trustee -
(A) cures, or provides adequate assurance that the trustee will
promptly cure, such default other than a default that is a breach
of a provision relating to the satisfaction of any provision
(other than a penalty rate or penalty provision) relating to a
default arising from any failure to perform nonmonetary
obligations under an unexpired lease of real property, if it is
impossible for the trustee to cure such default by performing
nonmonetary acts at and after the time of assumption, except that
if such default arises from a failure to operate in accordance
with a nonresidential real property lease, then such default
shall be cured by performance at and after the time of assumption
in accordance with such lease, and pecuniary losses resulting
from such default shall be compensated in accordance with the
provisions of this paragraph;
(B) compensates, or provides adequate assurance that the
trustee will promptly compensate, a party other than the debtor
to such contract or lease, for any actual pecuniary loss to such
party resulting from such default; and
(C) provides adequate assurance of future performance under
such contract or lease.
(2) Paragraph (1) of this subsection does not apply to a default
that is a breach of a provision relating to -
(A) the insolvency or financial condition of the debtor at any
time before the closing of the case;
(B) the commencement of a case under this title;
(C) the appointment of or taking possession by a trustee in a
case under this title or a custodian before such commencement; or
(D) the satisfaction of any penalty rate or penalty provision
relating to a default arising from any failure by the debtor to
perform nonmonetary obligations under the executory contract or
unexpired lease.
(3) For the purposes of paragraph (1) of this subsection and
paragraph (2)(B) of subsection (f), adequate assurance of future
performance of a lease of real property in a shopping center
includes adequate assurance -
(A) of the source of rent and other consideration due under
such lease, and in the case of an assignment, that the financial
condition and operating performance of the proposed assignee and
its guarantors, if any, shall be similar to the financial
condition and operating performance of the debtor and its
guarantors, if any, as of the time the debtor became the lessee
under the lease;
(B) that any percentage rent due under such lease will not
decline substantially;
(C) that assumption or assignment of such lease is subject to
all the provisions thereof, including (but not limited to)
provisions such as a radius, location, use, or exclusivity
provision, and will not breach any such provision contained in
any other lease, financing agreement, or master agreement
relating to such shopping center; and
(D) that assumption or assignment of such lease will not
disrupt any tenant mix or balance in such shopping center.
(4) Notwithstanding any other provision of this section, if there
has been a default in an unexpired lease of the debtor, other than
a default of a kind specified in paragraph (2) of this subsection,
the trustee may not require a lessor to provide services or
supplies incidental to such lease before assumption of such lease
unless the lessor is compensated under the terms of such lease for
any services and supplies provided under such lease before
assumption of such lease.
(c) The trustee may not assume or assign any executory contract
or unexpired lease of the debtor, whether or not such contract or
lease prohibits or restricts assignment of rights or delegation of
duties, if -
(1)(A) applicable law excuses a party, other than the debtor,
to such contract or lease from accepting performance from or
rendering performance to an entity other than the debtor or the
debtor in possession, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties; and
(B) such party does not consent to such assumption or
assignment; or
(2) such contract is a contract to make a loan, or extend other
debt financing or financial accommodations, to or for the benefit
of the debtor, or to issue a security of the debtor; or
(3) such lease is of nonresidential real property and has been
terminated under applicable nonbankruptcy law prior to the order
for relief.
(d)(1) In a case under chapter 7 of this title, if the trustee
does not assume or reject an executory contract or unexpired lease
of residential real property or of personal property of the debtor
within 60 days after the order for relief, or within such
additional time as the court, for cause, within such 60-day period,
fixes, then such contract or lease is deemed rejected.
(2) In a case under chapter 9, 11, 12, or 13 of this title, the
trustee may assume or reject an executory contract or unexpired
lease of residential real property or of personal property of the
debtor at any time before the confirmation of a plan but the court,
on the request of any party to such contract or lease, may order
the trustee to determine within a specified period of time whether
to assume or reject such contract or lease.
(3) The trustee shall timely perform all the obligations of the
debtor, except those specified in section 365(b)(2), arising from
and after the order for relief under any unexpired lease of
nonresidential real property, until such lease is assumed or
rejected, notwithstanding section 503(b)(1) of this title. The
court may extend, for cause, the time for performance of any such
obligation that arises within 60 days after the date of the order
for relief, but the time for performance shall not be extended
beyond such 60-day period. This subsection shall not be deemed to
affect the trustee's obligations under the provisions of subsection
(b) or (f) of this section. Acceptance of any such performance does
not constitute waiver or relinquishment of the lessor's rights
under such lease or under this title.
(4)(A) Subject to subparagraph (B), an unexpired lease of
nonresidential real property under which the debtor is the lessee
shall be deemed rejected, and the trustee shall immediately
surrender that nonresidential real property to the lessor, if the
trustee does not assume or reject the unexpired lease by the
earlier of -
(i) the date that is 120 days after the date of the order for
relief; or
(ii) the date of the entry of an order confirming a plan.
(B)(i) The court may extend the period determined under
subparagraph (A), prior to the expiration of the 120-day period,
for 90 days on the motion of the trustee or lessor for cause.
(ii) If the court grants an extension under clause (i), the court
may grant a subsequent extension only upon prior written consent of
the lessor in each instance.
(5) The trustee shall timely perform all of the obligations of
the debtor, except those specified in section 365(b)(2), first
arising from or after 60 days after the order for relief in a case
under chapter 11 of this title under an unexpired lease of personal
property (other than personal property leased to an individual
primarily for personal, family, or household purposes), until such
lease is assumed or rejected notwithstanding section 503(b)(1) of
this title, unless the court, after notice and a hearing and based
on the equities of the case, orders otherwise with respect to the
obligations or timely performance thereof. This subsection shall
not be deemed to affect the trustee's obligations under the
provisions of subsection (b) or (f). Acceptance of any such
performance does not constitute waiver or relinquishment of the
lessor's rights under such lease or under this title.
(e)(1) Notwithstanding a provision in an executory contract or
unexpired lease, or in applicable law, an executory contract or
unexpired lease of the debtor may not be terminated or modified,
and any right or obligation under such contract or lease may not be
terminated or modified, at any time after the commencement of the
case solely because of a provision in such contract or lease that
is conditioned on -
(A) the insolvency or financial condition of the debtor at any
time before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a trustee in a
case under this title or a custodian before such commencement.
(2) Paragraph (1) of this subsection does not apply to an
executory contract or unexpired lease of the debtor, whether or not
such contract or lease prohibits or restricts assignment of rights
or delegation of duties, if -
(A)(i) applicable law excuses a party, other than the debtor,
to such contract or lease from accepting performance from or
rendering performance to the trustee or to an assignee of such
contract or lease, whether or not such contract or lease
prohibits or restricts assignment of rights or delegation of
duties; and
(ii) such party does not consent to such assumption or
assignment; or
(B) such contract is a contract to make a loan, or extend other
debt financing or financial accommodations, to or for the benefit
of the debtor, or to issue a security of the debtor.
(f)(1) Except as provided in subsections (b) and (c) of this
section, notwithstanding a provision in an executory contract or
unexpired lease of the debtor, or in applicable law, that
prohibits, restricts, or conditions the assignment of such contract
or lease, the trustee may assign such contract or lease under
paragraph (2) of this subsection.
(2) The trustee may assign an executory contract or unexpired
lease of the debtor only if -
(A) the trustee assumes such contract or lease in accordance
with the provisions of this section; and
(B) adequate assurance of future performance by the assignee of
such contract or lease is provided, whether or not there has been
a default in such contract or lease.
(3) Notwithstanding a provision in an executory contract or
unexpired lease of the debtor, or in applicable law that terminates
or modifies, or permits a party other than the debtor to terminate
or modify, such contract or lease or a right or obligation under
such contract or lease on account of an assignment of such contract
or lease, such contract, lease, right, or obligation may not be
terminated or modified under such provision because of the
assumption or assignment of such contract or lease by the trustee.
(g) Except as provided in subsections (h)(2) and (i)(2) of this
section, the rejection of an executory contract or unexpired lease
of the debtor constitutes a breach of such contract or lease -
(1) if such contract or lease has not been assumed under this
section or under a plan confirmed under chapter 9, 11, 12, or 13
of this title, immediately before the date of the filing of the
petition; or
(2) if such contract or lease has been assumed under this
section or under a plan confirmed under chapter 9, 11, 12, or 13
of this title -
(A) if before such rejection the case has not been converted
under section 1112, 1208, or 1307 of this title, at the time of
such rejection; or
(B) if before such rejection the case has been converted
under section 1112, 1208, or 1307 of this title -
(i) immediately before the date of such conversion, if such
contract or lease was assumed before such conversion; or
(ii) at the time of such rejection, if such contract or
lease was assumed after such conversion.
(h)(1)(A) If the trustee rejects an unexpired lease of real
property under which the debtor is the lessor and -
(i) if the rejection by the trustee amounts to such a breach as
would entitle the lessee to treat such lease as terminated by
virtue of its terms, applicable nonbankruptcy law, or any
agreement made by the lessee, then the lessee under such lease
may treat such lease as terminated by the rejection; or
(ii) if the term of such lease has commenced, the lessee may
retain its rights under such lease (including rights such as
those relating to the amount and timing of payment of rent and
other amounts payable by the lessee and any right of use,
possession, quiet enjoyment, subletting, assignment, or
hypothecation) that are in or appurtenant to the real property
for the balance of the term of such lease and for any renewal or
extension of such rights to the extent that such rights are
enforceable under applicable nonbankruptcy law.
(B) If the lessee retains its rights under subparagraph (A)(ii),
the lessee may offset against the rent reserved under such lease
for the balance of the term after the date of the rejection of such
lease and for the term of any renewal or extension of such lease,
the value of any damage caused by the nonperformance after the date
of such rejection, of any obligation of the debtor under such
lease, but the lessee shall not have any other right against the
estate or the debtor on account of any damage occurring after such
date caused by such nonperformance.
(C) The rejection of a lease of real property in a shopping
center with respect to which the lessee elects to retain its rights
under subparagraph (A)(ii) does not affect the enforceability under
applicable nonbankruptcy law of any provision in the lease
pertaining to radius, location, use, exclusivity, or tenant mix or
balance.
(D) In this paragraph, "lessee" includes any successor, assign,
or mortgagee permitted under the terms of such lease.
(2)(A) If the trustee rejects a timeshare interest under a
timeshare plan under which the debtor is the timeshare interest
seller and -
(i) if the rejection amounts to such a breach as would entitle
the timeshare interest purchaser to treat the timeshare plan as
terminated under its terms, applicable nonbankruptcy law, or any
agreement made by timeshare interest purchaser, the timeshare
interest purchaser under the timeshare plan may treat the
timeshare plan as terminated by such rejection; or
(ii) if the term of such timeshare interest has commenced, then
the timeshare interest purchaser may retain its rights in such
timeshare interest for the balance of such term and for any term
of renewal or extension of such timeshare interest to the extent
that such rights are enforceable under applicable nonbankruptcy
law.
(B) If the timeshare interest purchaser retains its rights under
subparagraph (A), such timeshare interest purchaser may offset
against the moneys due for such timeshare interest for the balance
of the term after the date of the rejection of such timeshare
interest, and the term of any renewal or extension of such
timeshare interest, the value of any damage caused by the
nonperformance after the date of such rejection, of any obligation
of the debtor under such timeshare plan, but the timeshare interest
purchaser shall not have any right against the estate or the debtor
on account of any damage occurring after such date caused by such
nonperformance.
(i)(1) If the trustee rejects an executory contract of the debtor
for the sale of real property or for the sale of a timeshare
interest under a timeshare plan, under which the purchaser is in
possession, such purchaser may treat such contract as terminated,
or, in the alternative, may remain in possession of such real
property or timeshare interest.
(2) If such purchaser remains in possession -
(A) such purchaser shall continue to make all payments due
under such contract, but may, offset against such payments any
damages occurring after the date of the rejection of such
contract caused by the nonperformance of any obligation of the
debtor after such date, but such purchaser does not have any
rights against the estate on account of any damages arising after
such date from such rejection, other than such offset; and
(B) the trustee shall deliver title to such purchaser in
accordance with the provisions of such contract, but is relieved
of all other obligations to perform under such contract.
(j) A purchaser that treats an executory contract as terminated
under subsection (i) of this section, or a party whose executory
contract to purchase real property from the debtor is rejected and
under which such party is not in possession, has a lien on the
interest of the debtor in such property for the recovery of any
portion of the purchase price that such purchaser or party has
paid.
(k) Assignment by the trustee to an entity of a contract or lease
assumed under this section relieves the trustee and the estate from
any liability for any breach of such contract or lease occurring
after such assignment.
(l) If an unexpired lease under which the debtor is the lessee is
assigned pursuant to this section, the lessor of the property may
require a deposit or other security for the performance of the
debtor's obligations under the lease substantially the same as
would have been required by the landlord upon the initial leasing
to a similar tenant.
(m) For purposes of this section 365 and sections 541(b)(2) and
362(b)(10), leases of real property shall include any rental
agreement to use real property.
(n)(1) If the trustee rejects an executory contract under which
the debtor is a licensor of a right to intellectual property, the
licensee under such contract may elect -
(A) to treat such contract as terminated by such rejection if
such rejection by the trustee amounts to such a breach as would
entitle the licensee to treat such contract as terminated by
virtue of its own terms, applicable nonbankruptcy law, or an
agreement made by the licensee with another entity; or
(B) to retain its rights (including a right to enforce any
exclusivity provision of such contract, but excluding any other
right under applicable nonbankruptcy law to specific performance
of such contract) under such contract and under any agreement
supplementary to such contract, to such intellectual property
(including any embodiment of such intellectual property to the
extent protected by applicable nonbankruptcy law), as such rights
existed immediately before the case commenced, for -
(i) the duration of such contract; and
(ii) any period for which such contract may be extended by
the licensee as of right under applicable nonbankruptcy law.
(2) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, under such contract -
(A) the trustee shall allow the licensee to exercise such
rights;
(B) the licensee shall make all royalty payments due under such
contract for the duration of such contract and for any period
described in paragraph (1)(B) of this subsection for which the
licensee extends such contract; and
(C) the licensee shall be deemed to waive -
(i) any right of setoff it may have with respect to such
contract under this title or applicable nonbankruptcy law; and
(ii) any claim allowable under section 503(b) of this title
arising from the performance of such contract.
(3) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, then on the written request of
the licensee the trustee shall -
(A) to the extent provided in such contract, or any agreement
supplementary to such contract, provide to the licensee any
intellectual property (including such embodiment) held by the
trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such
contract, to such intellectual property (including such
embodiment) including any right to obtain such intellectual
property (or such embodiment) from another entity.
(4) Unless and until the trustee rejects such contract, on the
written request of the licensee the trustee shall -
(A) to the extent provided in such contract or any agreement
supplementary to such contract -
(i) perform such contract; or
(ii) provide to the licensee such intellectual property
(including any embodiment of such intellectual property to the
extent protected by applicable nonbankruptcy law) held by the
trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such
contract, to such intellectual property (including such
embodiment), including any right to obtain such intellectual
property (or such embodiment) from another entity.
(o) In a case under chapter 11 of this title, the trustee shall
be deemed to have assumed (consistent with the debtor's other
obligations under section 507), and shall immediately cure any
deficit under, any commitment by the debtor to a Federal depository
institutions regulatory agency (or predecessor to such agency) to
maintain the capital of an insured depository institution, and any
claim for a subsequent breach of the obligations thereunder shall
be entitled to priority under section 507. This subsection shall
not extend any commitment that would otherwise be terminated by any
act of such an agency.
(p)(1) If a lease of personal property is rejected or not timely
assumed by the trustee under subsection (d), the leased property is
no longer property of the estate and the stay under section 362(a)
is automatically terminated.
(2)(A) If the debtor in a case under chapter 7 is an individual,
the debtor may notify the creditor in writing that the debtor
desires to assume the lease. Upon being so notified, the creditor
may, at its option, notify the debtor that it is willing to have
the lease assumed by the debtor and may condition such assumption
on cure of any outstanding default on terms set by the contract.
(B) If, not later than 30 days after notice is provided under
subparagraph (A), the debtor notifies the lessor in writing that
the lease is assumed, the liability under the lease will be assumed
by the debtor and not by the estate.
(C) The stay under section 362 and the injunction under section
524(a)(2) shall not be violated by notification of the debtor and
negotiation of cure under this subsection.
(3) In a case under chapter 11 in which the debtor is an
individual and in a case under chapter 13, if the debtor is the
lessee with respect to personal property and the lease is not
assumed in the plan confirmed by the court, the lease is deemed
rejected as of the conclusion of the hearing on confirmation. If
the lease is rejected, the stay under section 362 and any stay
under section 1301 is automatically terminated with respect to the
property subject to the lease.