USA - NEW JERSEY Law and Practice Contributed by: Steven Fleissig, David Freylikhman, Cory Mitchell Gray and David Jensen, Greenberg Traurig LLP
Thereafter, there are specific requirements under bankruptcy law with respect to whether a lease, which is a contractual agreement, is to be assumed or rejected, and which establish meth - ods for calculation and recovery of rents unpaid as of the date of the bankruptcy filing. The lease is an executory contract and bankruptcy law may impose rules and obligations on how this must be treated. 6.16 Forms of Security to Protect Against a Failure of the Tenant to Meet Its Obligations Typically, landlords require a security deposit at the outset of the lease in the form of either cash security or a letter of credit or a guaranty from a well- capitalised parent entity. A letter of credit or a parent guaranty is generally considered more desirable to a landlord than a cash secu - rity deposit as such forms of security deposit may place the landlord in a better position in the event of the bankruptcy of the tenant. The amount of the security deposit is negotiated but is often based on monthly rent or a multiple thereof. In addition, for long-term leases, tenants will often negotiate a “burn-down” where the amount of the security can be reduced over time with good behaviour. 6.17 Right to Occupy After Termination or Expiry of a Lease New Jersey has a holdover statute which may impose on the tenant the obligation to pay up to 200% of the current rental rate or the actual fair market value of the premises (whichever is greater) in the event of a holdover, but a common provision is for 150% of the current rent. When a tenant remains in possession of the premises after the lease is terminated, the lease may con - tinue as a month-to-month lease and the tenant
will be required to continue to comply with the terms of the lease. At that point, the tenant can be evicted by the landlord upon 30 days’ notice. 6.18 Right to Assign a Leasehold Interest Assignment and subletting are extremely sensi - tive issues that are commonly negotiated in the written lease. Where a lease is silent, the tenant does have a right to assign its leasehold inter - est in the lease and/or sublet all or a portion of the premises; however, landlords and tenants usually draft language into the lease to ensure there is no misunderstanding as to the terms and potential limitations. Where a landlord will permit a tenant to assign its lease or sublet a portion of the premises, the landlord often still imposes a requirement to seek prior written consent or, for an affiliate, advance written notice. In addition, any number of the following conditions could be considered in New Jersey when negotiating an assignment and sublease clause: • both the original tenant and the guarantors must remain liable on the lease; • the proposed assignee or sublessee is affiliat - ed with the tenant or under common control; • a net worth covenant must be met by the assignee or sublessee and must demonstrate strength equal to or greater than the tenant; • the landlord’s right of recapture; • the use of the premises shall not change; and/or • a percentage profit share in the event that the tenant assigns or subleases the premises and receives rental income that exceeds the rent due under the primary lease.
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