In the Rite Aid reorganization, Bankruptcy Judge Michael B. Kaplan of Trenton, N.J., ruled that filing an assumption motion before the lease assumption deadline is not necessary. It’s enough if the debtor files a schedule showing the leases to be assumed.

Before the chapter 11 filing, the debtor had notified the landlord of its decision to exercise an option to renew the commercial lease for five years. After filing, the debtor filed a motion, and the court entered an order, extending the assumption/rejection deadline under Section 365(d)(4) until May 13, 2024.

Three months before the May 13 deadline, the debtor filed a notice of its intention to assume the lease. The landlord objected, contending there were nonmonetary defaults, thus indicating that the lessor was aware of the debtor’s intention to assume.

Twice before the May 13 deadline, the debtor filed notices and schedules to its reorganization plan listing the lease among those to be assumed through the plan.

When the debtor did not file an assumption motion before the May 13 deadline, the landlord filed a motion to compel rejection. The landlord contended that the failure to file an assumption motion meant that the lease was automatically rejected.

Judge Kaplan said that the debtor countered by arguing that it met the deadline “by filing and serving the Assumption Schedule [by the deadline], which provided [the landlord] with notice of their decision to assume the Lease.”

Interpreting Section 365(d)(4)(A), Judge Kaplan agreed with the debtor in his November 6 opinion and denied the landlord’s motion. The subsection provides:

[A]n unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected . . . if the trustee does not assume or reject the unexpired lease by the earlier of — (i) the date that is 120 days after the date of the order for relief; or (ii) the date of the entry of an order confirming a plan.

Under Section 365(d)(4)(B)(i), the “court may extend the period determined under subparagraph (A), prior to the expiration of the 120-day period, for 90 days on the motion of the trustee or lessor for cause.”

Judge Kaplan noted that an extension of the deadline under Section 365(d)(4)(B)(i) does require a motion, but Section 365(d)(4)(A) does not mention a motion. Instead, Section 365(d)(4)(A) only says that a lease is automatically rejected “if the trustee does not assume or reject” by the deadline.

Given the differences between the language in the subsections, Judge Kaplan framed the question as “whether Debtors complied with the statute and assumed the Lease prior to the Assumption Deadline by filing and serving the Assumption Schedule.”

Surveying the caselaw, Judge Kaplan found that “none . . . stand for the proposition that the filing of a motion is the only way to effectuate assumption under § 365(d)(4).” He concluded that “the deadline under § 365(d)(4) is met when a trustee or debtor in possession timely communicates a clear intention to assume.”

Judge Kaplan observed that “the statute does not explicitly require the filing of a motion.” If he were to require an assumption motion, he said he “would effectively add words into the statute that are not there — essentially replacing the word ‘assume’ with the phrase ‘file a motion to assume.’ This is an impermissible and unnecessary interpretation of the statute.”

Judge Kaplan said that the exclusion of the word “motion” in Section 365(d)(4)(A) was “intentional” because the word does appear in Section 365(d)(4)(B)(i). He declined to “infer that Congress implied language that is absent.”

Judge Kaplan held that “the filing of a motion is not a prerequisite to assumption under § 365.” Instead, he held “that a trustee or debtor-in-possession may ‘assume’ a lease under § 365 by any mechanism that clearly and unequivocally expresses an intention to assume.”

Judge Kaplan denied the landlord’s motion to compel rejection, because the debtor had “clearly and unequivocally expressed to [the landlord] the Debtors’ intention to assume the Lease.”

Observations

A debtor cannot unilaterally assume a lease. For assumption, there ultimately must be a motion and an order. At least as cited by Judge Kaplan, there is a paucity of circuit authority confirming that a motion is not required before the automatic rejection deadline.

To this writer’s way of thinking, the possibility remains that an appellate court sometime in the future might decide that a motion is required to obviate automatic rejection. Were that to occur, the debtor could find itself bereft of leases.

Filing an assumption motion before the automatic rejection deadline may be the better practice.