In Re Art and Architecture Books of the 21st Century, USBC Case No. 2:13-bk-14135-RK

Recently, the U.S Bankruptcy Court for the Central District of California held that a commercial tenant’s waiver of its statutory right against forfeiture (termination) of its lease was enforceable.  The Debtor sought to assume a lease which had been terminated prior to the filing of Debtor’s bankruptcy petition, arguing that its waiver of rights against forfeiture was unenforceable.  In the case, because the tenant, Art and Architecture Books of the 21st Century (“Debtor”), had waived its rights to seek relief from forfeiture, the landlord, AERC Desmond Towers, LLC (“Landlord”), had the right to retake the premises and the Debtor had no opportunity through its bankruptcy to provide assurance that it could perform under the lease in the future.

The Court held for the Landlord, finding that the waiver was enforceable because: (1) there was no California statute which prohibited this waiver; (2) the primary purpose of the statute that the tenant had waived was intended primarily for private parties and not the public; and (3) enforcement of the waiver did not seriously compromise a public purpose.  The Court considered the balancing of the parties’ freedom of contract against the equitable principal that equity abhors forfeiture of a lease.  It held that freedom of contract outweighed the issue of equity, particularly since the lease at issue was a commercial agreement between parties represented by sophisticated legal counsel.

The Court found that the language in the lease was clear as to the parties’ intent.  The take-away here is that any lease provision requiring a commercial tenant to waive a statutory right should be drafted unambiguously and any tenant defaults should be declared by a commercial landlord in timely manner, i.e. prior to any bankruptcy filing by a tenant, so as to reduce the likelihood that the tenant could regain the premises in its bankruptcy proceeding.

“This information is for educational purposes only and not intended to constitute legal advice. Every project and property is unique. Please seek legal counsel for advice specific to your project.”