The lease seemed like a good idea at the time. The location was perfect, customers knew where to find you, and business was growing. Then something changed: Revenue dropped, expenses increased, and that same lease became one of the biggest obstacles standing between your business and financial recovery. If you are considering Chapter 11 bankruptcy, you may be wondering what happens to your commercial space and whether you are stuck paying rent you can no longer afford.

Key Takeaways

• Businesses can choose to assume, reject, or assign a commercial lease.
• Chapter 11’s automatic stay may temporarily protect a business from certain landlord actions, but those protections are not unlimited.
• Businesses generally have 120 days after filing Chapter 11 to decide what to do.
• Lease obligations, unpaid rent, and landlord claims can affect whether a business qualifies for Subchapter V bankruptcy.

The Three Options Under Chapter 11: Assume, Reject, or Assume and Assign

Thankfully, Florida law gives businesses options when filing for Chapter 11 bankruptcy. This is useful because everyone’s situation is different. Having options available can enable businesses and the court to find the best path forward. When addressing the commercial lease, a business can choose to assume, reject, or assign the lease.

What “Assuming” a Lease Requires

A business may choose to keep its commercial lease intact. The location could be a desirable one. It could be the only physical location for the business. The lease could have favorable terms for the business. If the business chooses to assume the lease, the rental agreement contract remains in place and enforceable. Both the tenant and landlord are bound by its terms.

The lease would be classified as an ongoing obligation after the bankruptcy. However, the business cannot unilaterally decide to assume the lease. It must fix any outstanding defaults, such as paying all of the outstanding back rent owed. It would also need to provide adequate assurance that it can continue to meet the contract lease obligations in the future. These requirements protect the landlord as a creditor of the business.

There may also be an option to renegotiate the lease terms. A landlord may prefer to restructure the lease rather than risk losing a tenant. The goal is to establish a commercial lease that can be realistically practical moving forward for both parties. The landlord and tenant could agree to restructure the rent payments, lease terms, or past-due amounts owed.

What “Rejecting” a Lease Actually Means

The opposite option of accepting the lease is to reject it. A business may choose to walk away from the lease agreement when the liability of paying it outweighs the potential benefits of keeping it. Once rejected, the lease is terminated, and the business walks away from any future lease obligations. The business must also leave the rental property. However, rejecting a lease doesn’t mean the lease never existed or that there are no consequences. A rejection is treated like a breach of the agreement under bankruptcy law.

The landlord may seek damages for unpaid rent and future obligations. The landlord may file a proof of claim for the pre-bankruptcy damages. This includes lease rejection damages for future rent. However, this claim is subject to a statutory cap, and is typically limited to one year of unpaid rent. (And even then, that claim would be treated only as a general unsecured claim.) The landlord may file a separate request for the payment and the allowance as an administrative expense claim for rents due during the bankruptcy case.

What is Assigning a Lease?

A third option is to accept the lease and assign it to another party. That third party would step into the shoes of the business declaring bankruptcy and assume lease obligations. This approach is common when the owner is selling their business. The new owner would assume the lease. If the business location is valuable and the lease terms are favorable, another business may have an interest in taking over the lease. Generally, the landlord cannot prevent an assignment from going through simply because the current tenant filed bankruptcy.

Lease Liabilities and the Subchapter V Debt Cap

For some small business owners, a traditional Chapter 11 bankruptcy may not be the only option. Subchapter V of Chapter 11 provides a streamlined process designed to make reorganization more accessible for qualifying small businesses. However, not every business will qualify. One important factor is whether the company falls within the applicable debt limit.

A business’s lease obligations can play a significant role in this calculation. Unpaid rent, past-due lease payments, and potential claims from landlords may affect the overall amount of debt a company has when determining eligibility. Before choosing a bankruptcy path, business owners should carefully review their financial obligations, including any liabilities tied to commercial property.

The debt threshold for Subchapter V has changed over time, including an adjustment that took effect in April 2025. Because eligibility requirements can change, business owners should confirm the current debt limits and work with a bankruptcy attorney to determine whether Subchapter V is the right option for their situation.

Commercial Landlord Rights During a Chapter 11 Case

Once a commercial tenant files for Chapter 11 bankruptcy, they are protected by automatic stays that prevent landlords from taking certain actions. Generally, a landlord cannot pursue eviction, make demands for payment of unpaid rent, or apply the security deposit to the outstanding rent. There are exceptions to these protections, and a landlord could seek court approval to take specific actions.

While these automatic stays provide relief, they are only temporary. The relief time period can also be shortened if the landlord secures a court-approved exception. If eviction proceedings were pending before the bankruptcy, a pre-petition eviction judgment may allow the landlord to bypass the stay.

Why Timing Matters: The 120-Day Deadline to Decide

Florida bankruptcy courts want to resolve the financial turmoil in a timely manner. There also needs to be a balance between assisting the business that is declaring bankruptcy and the creditors who are owed money. With this in mind, a business has a 120-day deadline after filing to decide if it will accept, reject, or assign a commercial lease. There may be extensions available, but only in certain circumstances and with court approval. It’s in the business’s best interest to decide quickly, as delaying can create greater uncertainty and delay the entire bankruptcy process. Speaking with a bankruptcy attorney can help owners and leaders evaluate each option before making a decision.

File Chapter 11 in Florida

For many business owners, the decision to file Chapter 11 comes with one major concern: what happens to the lease that keeps the business running? Whether you are trying to protect a valuable location, reduce financial pressure, or leave behind an agreement that no longer works, Chapter 11 provides tools that may help. The attorneys at Wernick Law, PLLC, help Florida businesses navigate the challenges of bankruptcy and restructuring.

Schedule a consultation with a Florida bankruptcy attorney who can help you understand your options under Chapter 11.