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Full title: Objection by Creditor STORE Master Funding XV, LLC and STORE Master Funding XVI, LLC to 175 Motion to sell property free and clear of liens. (Singer, George) (Entered: 03/10/2021)
Document posted on Mar 9, 2021 in the bankruptcy, 12 pages and 1 tables.
List of Tables
Page 1DISTRICT OF MINNESOTA _____________________________________________________________________________ In re: Tea Olive I, LLC d/b/a Stock+Field, BKY Case No. 21-30037 (Chapter 11) Debtor. _____________________________________________________________________________ LIMITED OBJECTION AND RESERVATION OF RIGHTS OF STORE MASTER FUNDING XV, LLC AND STORE MASTER FUNDING XVI, LLC TO DEBTOR’S ASSUMPTION AND ASSIGNMENT NOTICE _____________________________________________________________________________ STORE Master Funding XV, LLC (“SMF XV”) and STORE Master Funding XVI, LLC (“SMF XVI” and together with SMF XV, the “Landlords”) by and through their undersigned counsel, hereby submit this Limited Objection and Reservation of Rights (the “Objection”) to Debtor’s Assumption and Assignment Notice [D.I. 178] (the “Cure Notice”), and in connection therewith states as follows: 1. On January 10, 2021 (the “Petition Date”), Tea Olive I, LLC d/b/a Stock + Field (the “Debtor”), filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). The Debtor continues to operate its businesses and manage its properties as a debtor in possession pursuant to 11 U.S.C. §§ 1107(a) and 1108. 2. The Debtor leases retail space (the “Premises”) from the Landlords pursuant to unexpired leases of nonresidential real property (individually, a “Lease,” and collectively, the “Leases”) set forth in detail in paragraph 18 below. 3. The Leases are leases “of real property in a shopping center” as that term is used in Section 365(b)(3). See In re Joshua Slocum, Ltd., 922 F.2d 1081, 1086-87 (3d Cir. 1990). 4. On February 26, 2021, Debtor filed its Notice of Hearing and Motion for an Order (I)
Page 2[D.I. 175] seeking inter alia, approval of an asset purchase agreement with R.P. Acquisition Corporation (“Purchaser”) for substantially all of its assets. As more fully set forth in the Sale Motion, the sale of assets to Purchaser include the assumption and assignment of certain of the Debtors’ non-residential real property leases, including some or all of the Leases. I. ARGUMENT General Objections to Assumption and Assignment of Leases 5. While Landlords do not generally object to a sale of the Debtors’ assets to maximize the value of the estate for the benefit of all creditors, including Landlords, Landlords do object to any proposed assumption and assignment of the Leases unless Debtors and/or the Purchaser comply with all of the requirements of Sections 365 of the Bankruptcy Code. Absent the ability, or willingness, of the Debtors and the proposed assignee to satisfy said requirements, any proposed assumption and assignment must be denied. Any Assumption and Assignment Must Comply with the Terms of the Leases6. Through the BAPCPA amendments, “Section 365(f)(1) was amended to make sure that all of the provisions of Section 365(b) are adhered to and that 365(f) of the Code does not override Section 365(b).” Floor Statement of Senator Orrin Hatch, 151 Cong. Rec. S. 2459, 2461-62 (daily ed. March 10, 2005). In explaining the change to Section 365(f)(1), Senator Hatch stated: The bill helps clarify that an owner should be able to retain control over the mix of retail uses in a shopping center. When an owner enters into a use clause with a retail tenant forbidding assignments of the lease for a use different than that specified in the lease, that clause should be honored. Congress has so intended already, but bankruptcy judges have sometimes ignored the law. 151 Cong. Rec. S. 2459, 2461 (daily ed. March 10, 2005).
Page 3enforce use and other lease provisions. Again, Senator Hatch’s remarks in the Congressional Record clarify the intent behind Section 365(b) and 365(f): A shopping center operator . . . must be given broad leeway to determine the mix of retail tenants it leases to. Congress decided that use or similar restrictions in a retail lease, which the retailer cannot evade under nonbankruptcy law, should not be evaded in bankruptcy. It is my understanding that some bankruptcy judges have not followed this mandate. Under another provisions of the Code, Section 365(f), a number of bankruptcy judges have misconstrued the Code and allowed the assignment of a lease even though terms of the lease are not being followed. 151 Cong. Rec. S. 2459, 2461-62 (daily ed. March 10, 2005). 8. BAPCPA clarified Section 365 to reflect the Congressional intent that a Debtor cannot use Section 365(f)(1) to void lease provisions, and to overrule those prior court decisions that did not strictly enforce lease terms. The predicate to the limited ability to assign a lease over a landlord’s objection under Section 365(f) is that such assignment must be subject to the protections of Section 365(b)(1) and (3). 9. Section 365(f)(1) does not modify or override Section 365(b). Trak Auto Corp. v. West Town Ctr. LLC (In re Trak Auto Corp.), 367 F.3d 237, 243-44 (4th Cir. 2004) (bankruptcy courts could not use the general anti-assignment provision of Section 365(f)(1) to trump the specific protections granted to landlords in Section 365(b)(3)(C)). Any assignment must remain subject to all provisions of the Leases, including those provisions concerning use, radius, exclusivity, tenant mix and balance.
Page 4Adequate Assurance of Future Performance 10. Pursuant to Section 365(f)(2)(B) of the Bankruptcy Code, Debtors may only assume and assign the Landlords’ Leases if “adequate assurance of future performance by the assignee of such . . . lease is provided, . . . .” 11. The burden of proof on adequate assurance issues is with the Debtors. See In re Lafayette Radio Elecs. Corp., 12 B.R. 302, 312 (Bankr. E.D.N.Y. 1991). 12. To date, Landlords have not received adequate assurance information relating to the Purchaser. Landlords demand strict proof of Purchaser’s ability to provide adequate assurance of future performance prior to any objection deadline and no later than at any hearing on the Sale Motion. 13. Further, since the Debtors’ stores are located in shopping centers, Debtors and the Purchaser must meet the heightened requirements of adequate assurance that the Bankruptcy Code contemplates in the case of such assignments. The Bankruptcy Code requires more than the basic adequate assurance of future performance of the Leases under Section 365(b)(1)(C). In re Sun TV and Appliances, Inc., 234 B.R. 356, 359 (Bankr. D. Del. 1999). In order to assume and assign shopping center leases, Debtors must satisfy the heightened requirements set forth in 11 U.S.C. § 365(b)(3)(A) – (D). See Joshua Slocum, 922 F.2d at 1086; see also L.R.S.C. Co. v. Rickel Home Centers, Inc. (In re Rickel Home Centers, Inc.), 209 F. 3d 291, 299 (3d Cir. 2000). The heightened adequate assurance requirements include the following: The source of rent and assurance that the financial condition and operating performance of the proposed assignee and its guarantors, if any, must be similar to the financial condition and operating performance of the debtor and its guarantor(s), if any, as of the time the debtor became the lessee. See 11 U.S.C. § 365(b)(3)(A); That any percentage rent due under the lease will not decline substantially. See 11 U.S.C.
Page 5(but not limited to) provisions such as a radius, location, use, or exclusivity provision, and will not breach of any such provision in any other lease, financing agreement, or master agreement relating to such shopping center. See 11 U.S.C. § 365(b)(3)(C); and That assumption and assignment of the lease will not disrupt the tenant mix or balance in the shopping center. See 11 U.S.C. § 365(b)(3)(D). Additional Security 14. If a Purchaser does not possess sufficient operating experience or capitalization to satisfy Landlords’ requirements, Purchaser must also provide some type of credit enhancement as part of its adequate assurance of future performance demonstration, such as: (i) a guaranty of future performance from a financially capable parent or other entity; (ii) a letter of credit; or (iii) a cash security deposit, as required by Section 365(l) of the Bankruptcy Code. 15. Accordingly, pursuant to Section 365(l) of the Bankruptcy Code, Landlords demand that Purchaser post either a letter of credit or, in Landlords’ sole discretion, a security deposit, equal to three (3) month’s rent and additional rental charges under each Lease. Proposed Cure Amount 16. The Cure Notice lists three separate leases with “Store Capital” and a single cure amount of $1,102,517.00. 17. As an initial matter, the Cure Notice does not adequately identify the contract counterparties to the Leases and does not identify the proposed cure amounts associated with each Lease.
|Amended and Restated Master
Lease Agreement dated July 1,
|SMF XV||3660 Commerce Dr., Warsaw, IN
4301 South Franklin Street,
Michigan City, IN 46360
3363 North Vermilion, Danville,
1200 East Walnut Street, Watseka,
902 Erskine Plaza, South Bend, IN
|Amended and Restated Master
Lease Agreement dated February
9, 2019 (Portfolio #2)
|SMF XV||2100 Peace Tree Village,
Rochester, IN 46975
15830 South Bell Road, Homer
Glen, IL 60491
1625 South Georgetown Road,
Tilton, IL 61833
2655 Sycamore Drive, Morris, IL
3501 South Main Street, Elkhart,
70 Cherry Tree Shopping Center,
Washington, IL 61571
|Master Lease Agreement dated
August 17, 2018 (Portfolio #3)
|SMF XVI||1550 North Cass Street, Wabash,
1027 West Reynolds, Pontiac, IL
3315 Court Street, Pekin, IL 61554
1240 North 7th Street, Rochelle,
623 East First Street, Gibson City,
1601 US Highway 231,
Crawfordsville, IN 47933