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TITLE 11.
BANKRUPTCY · UNITED STATES CODE
Chapter 3.
Case Administration
Subchapter III. Administration
11
USC § 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.
[Rev. 5-4-05]
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