The rumor mill in the theatre industry is running at full tilt, and it is common knowledge that several other large chains are also experiencing severe financial difficulties and may join their competitors in Chapter 11. Adding insult to injury, after capping the property owner's damages at one-year's rent, the Bankruptcy Code also permits these reduced claims to be paid over time and often at a substantial discount. Many theatre bankruptcies are little more than glorified real estate cases. The existence of these provisions in the Bankruptcy Code make it easy to understand why so many theatre operators with poor locations are seeking refuge from their creditors. A debtor can assume and assign a lease to a new tenant as well.
Rejection is a more difficult concept to grasp.
Absent other actions, rejection is not the same as termination. A lease can be rejected and the developer still may have to return to State court and terminate the lease. In the recent case of Edwards Theatres, on the same day that Edwards Theatres filed bankruptcy, Edwards filed a motion with the Bankruptcy Court seeking to reject 28 theatre leases. In most instances the theatres have recently closed, but in a few it was seeking to renegotiate the terms of the lease with the property owner. The unfortunate property owner who has a theatre tenant who perceives the location as a poor location and subject to an unfavorable lease, will likely face the same fate as the 28 property owners in the Edwards case.