## Facts

- A lumberyard operator filed a voluntary Chapter 11 case and listed its commercial lease as an unexpired lease subject to assumption or rejection.
- The landlord sought postpetition rent, taxes, and proof of insurance, and later objected to the debtor’s motion to assume the lease.
- The parties disputed the cure amount for assumption, including prepetition rent, postpetition real estate taxes, and attorney’s fees under a lease fee-shifting clause.
- The debtor attempted to tender both prepetition and postpetition amounts at the assumption hearing; the landlord accepted only the postpetition portion and declined the prepetition tender at that time.
- To show adequate assurance of future performance, the debtor relied on (i) a financing commitment that earmarked funds for payments to the landlord, (ii) a third-party guaranty covering roughly six months of rent, and (iii) expert testimony that the lease rent was below market and therefore a valuable, potentially saleable asset.

## Issues

1. Whether the debtor could assume the defaulted commercial lease under 11 U.S.C. § 365(a) by curing defaults and compensating the landlord for pecuniary loss under § 365(b)(1)(A)–(B), including disputed attorney’s fees.
2. Whether the debtor provided adequate assurance of future performance under 11 U.S.C. § 365(b)(1)(C) despite a poor payment history and alleged postpetition shortcomings.

## Decision

- The court granted the motion to assume the lease, subject to conditions.
- The debtor was required, within 10 days after entry of the order, to:
  - Tender the full amount necessary to cure all prepetition defaults, including $7,000 on account of attorney’s fees potentially recoverable under the lease; and
  - Provide an additional $50,000 as a supplemental security deposit.
- The court treated adequate assurance as a practical, fact-based showing rather than certainty, and found the financing, guaranty, and below-market lease value sufficient when coupled with the protective conditions.

## Legal Principles

- A Chapter 11 debtor in possession may assume an unexpired lease under § 365(a) only if, upon default, it satisfies § 365(b)(1) by:
  - Curing (or providing adequate assurance of prompt cure of) defaults;
  - Compensating (or providing adequate assurance of compensation for) actual pecuniary loss from the default; and
  - Providing adequate assurance of future performance.
- When a lease provides for attorney’s fees, a reasonable estimate of potentially recoverable fees may be included in the cure/compensation required for assumption, even if the final fee entitlement or amount remains to be determined.
- “Adequate assurance of future performance” is flexible and fact-intensive and may be supported by financing commitments, third-party guarantees, additional security deposits, and evidence that a below-market lease has independent value to the estate and is potentially assignable or saleable.

## Conclusion

The court permitted assumption of a defaulted commercial lease because the debtor’s financing and guaranty arrangements, combined with evidence that the lease was a valuable below-market asset, provided adequate assurance of future performance, and the landlord was protected by prompt cure requirements and a substantial supplemental security deposit.


In re M. Fine Lumber Co., 383 B.R. 565 (Bankr. E.D.N.Y. 2008)