Archive for the ‘Collections’ Category

13 Nov

Commercial Landlords and WeWork Will Face Off in Bankruptcy

Posted by Douglas A. Goldstein, Esq. in Bankruptcy, chapter 11, Collections, Landlord tenant law. Tagged: , , , .

As a flexible workspace provider, WeWork relies on commercial landlords for its survival. WeWork rents space from these landlords and then rents or sublets that space to its customers. So, what happens to WeWork’s commercial landlords in a bankruptcy case? Let’s explore a few scenarios:

  1. Lease Rejection:  In bankruptcy, lease rejection allows the debtor (WeWork) to break a lease without the associated ramifications.  The debtor can limit or avoid paying rent that came due before the bankruptcy filing, as well as rent owed for the period after the debtor vacates, or ceases to benefit from, the premises.  The affected landlord still has remedies.  The landlord can pursue a rent claim based on the debtor’s continued benefit and occupancy of the premises.  Also, the landlord can pursue a claim for its lease rejection damages, up to a capped amount.
  2. Lease Assumption:  If the debtor wishes to keep a lease, the debtor can ask the bankruptcy court for authority to assume the lease.  If authorized by the court, the debtor can keep the lease and possession of the premises, subject to the lease terms.  Despite the powerful remedies in bankruptcy, the debtor may not change the lease terms without the landlord’s consent.  The Bankruptcy Code offers several opportunities for the landlord to challenge lease assumption – a bankruptcy attorney can advocate for the landlord and protects its rights.
  3. Lease Assumption and Assignment:  Similar to no. 2 above, the debtor can ask the bankruptcy court for permission to assume the lease, and to assign the lease to a new tenant.  With some exceptions, even if a lease contains an anti-assignment clause, the lease can be assigned in bankruptcy.  The landlord will want to conduct due diligence into the proposed tenant and may have grounds to challenge the assignment.  A bankruptcy attorney can advocate for the landlord and, where appropriate, defeat the assignment.

WeWork has not yet publicly identified the leases and contracts that it wishes to assume.  The Bankruptcy Code gives the debtor until the earlier of:

  • 120 days from the date of its bankruptcy case filing, or
  • the entry of an order confirming a chapter 11 plan,

to assume a lease of nonresidential real estate.  If the debtor needs additional time and shows cause, it can seek a 90-day extension of that deadline.

As of this writing, WeWork has proposed streamlined procedures for the assumption or rejection of leases and contracts, and it awaits the bankruptcy court’s consideration.

22 Nov

A New Obstacle to Debt Collection in New York State

Posted by Douglas A. Goldstein, Esq. in Collections, Creditor. Tagged: , .

On November 8, 2021, New York Governor Kathy Hochul signed into law the Consumer Credit Fairness Act (the “Act”).  How does the Act change consumer debt collection?

  • With some exceptions, the Act shortens a creditor’s time to file suit based on a consumer credit transaction, from 6 years to 3 years.
  • After that 3 year period expires, a payment or affirmation of the debt will not revive or extend the time to sue.
  • A collection lawsuit based on a consumer credit transaction must include:
    • a copy of the agreement for the debt, or a copy of the charge-off statement for a revolving credit account;
    • an “Additional Notice of Lawsuit” provided by the Act; and
    • a stamped, unsealed envelope addressed to the defendant at the same address where he is served.  The court will mail that notice.  If that notice is returned to the court as undeliverable and the defendant does not respond to the lawsuit, default judgment will not be entered.
  • As a result:
    • Creditors willing to settle still may need to file a lawsuit to preserve their claims.
    • A debtor who does not receive mail where he can be served, and who cannot be served where he receives mail, could become judgment-proof.

Who does the Act affect?  In addition to collection agencies and banks, the Act affects small businesses like home improvement contractors and others who sell on credit to consumers.

            In light of these and other legal developments, creditors need competent counsel to pursue their claims effectively.

https://www.linkedin.com/pulse/new-obstacle-debt-collection-york-state-doug-goldstein

7 Feb

Getting Paid Promptly In the Construction Business

Posted by Douglas A. Goldstein, Esq. in Collections, Construction. Tagged: .

If you are a construction contractor, you probably worry about getting paid on time.  After all, you need cash-flow to cover ongoing labor and material costs.

Under New Jersey’s Prompt Payment Act (N.J.S.A. 2A:30A-1 & -2) (the “Act”), in addition to the amount owed under the contract, a prime contractor may be entitled to interest at a rate of prime plus 1%, and reasonable attorneys’ fees and costs, if:

•  the contractor performs (in New Jersey) according to its contract with the owner (such as a landlord, developer, or homeowner);

•  the contractor provides written notice to the owner of the work performed and requests payment pursuant to what the contract entitles the contractor;

•  within 30 days after the agreed upon billing date, and if the owner has “approved and certified” the billing for the work, the owner does not pay the amount due under the contract

(with the exception of certain public entities, the owner is deemed to have “approved and certified” the billing for the work if, after 20 days after the owner receives the contractor’s written notice, the owner does not respond with a written statement of the amount withheld from payment and why);

•  the contract permits a party to resort to alternative dispute resolution (such as arbitration) to resolve a payment dispute; and

•  the contractor successfully prosecutes a lawsuit in New Jersey to collect the amount owed under the Act.

The Act also may permit the contractor, after giving 7 days’ written notice, to suspend performance under the contract if the owner (1) has not made the payment required by the Act, (2) has not provided the required written response, and (3) is not engaged in a good faith effort to resolve the reason for the withholding.

But beware: the Act will not restrict the rights and remedies of a residential homeowner or purchaser with respect to the property being improved.  A homeowner facing a lawsuit under the Act might try to assert a counterclaim under the many consumer protection laws, including the Consumer Fraud Act (a topic I will cover in a future article).