The U.S. Bankruptcy Court for the Central District of California held in In re Art and Architecture Books of the 21st Century that the tenant’s waiver of its right to seek relief from termination of its lease in a bankruptcy case was valid. In making its determination, the court found that the contractual provisions in the lease favored freedom of contract policy, noting that the landlord had provided sufficient proof that the lease was negotiated by both parties with assistance of qualified real estate legal counsel and that both parties had consented to the waiver of the tenant’s right to seek relief from forfeiture.
Since the tenant’s lease was terminated prior to the landlord’s bankruptcy petition filing, and the tenant had voluntarily waived the right to seek relief, the court said the tenant could not assume the lease and the landlord could proceed without assuring the tenant of future performance under the lease.
When drafting and negotiating a commercial real estate lease, landlords would be well advised to scrutinize any waiver of tenant rights provided by California Civil Code statutes and seek legal counsel to ensure the lease language is all-inclusive and unambiguous. In addition, commercial landlords should monitor leases for any defaults that would allow for the termination of a lease before a bankruptcy filing.
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