Adequate Assurance For Lease Assumption Doesn’t Require Guarantees

Under Section 365 of the Bankruptcy Code, a Debtor or Trustee may assume a nonresidential lease and may also assign the lease provided that lease is not in default or termed out. If the lease is in default, the default shall be cured and “adequate assurance” of future performance shall be provided to the landlord.

Adequate Assurance of Future Performance

“Adequate assurance of future performance” can be anything, but generally speaking, it may require a security deposit or increase of the security deposit to protect the landlord from defaults, guarantees, or such other security such as a letter of credit or certificate of deposit. Bottom line: the court has to find that the Debtor and/or assignee has the financial wherewithal to continue to perform under the lease for the remainder of the term. Now, of course litigation would arise if the landlord objects to such assignment on the basis that either the default has not been cured, be it monetary or non-monetary, or the adequate