Overview
Three recent chapter 11 filings by multi-location operators show tenants using bankruptcy to shed, sell, or renegotiate large lease portfolios.
- Meritage Hospitality Group ("Meritage"). On September 17, 2026, one of the largest Wendy’s franchisees in the country, operating 320 restaurants across 15 states, filed for chapter 11 in the Western District of Michigan. Meritage carries approximately $390.8 million in operating lease obligations with a weighted-average remaining term of 13 years. Before filing, it closed approximately 60 underperforming restaurants and completed 23 sale-leaseback transactions netting over $52 million. Its stated strategy includes further closures, “strategic market sales” to shrink the portfolio to a sustainable size, and store closing sales. The day before filing, the franchisor purported to terminate all franchise agreements and lease occupancy rights, which Meritage disputes; that dispute will drive whether leases can be assumed and assigned to a successor franchisee.
- Leslie’s, Inc. ("Leslie's"). On September 30, 2026, the pool-supply retailer filed in the Southern District of Texas with a lender-backed Restructuring Support Agreement that reduces funded debt by more than $685 million and targets emergence within 110 days. Having closed roughly 80 stores prepetition, Leslie’s announced 76 additional “Wave 1” closures and filed a first-day motion to reject those leases retroactively to the later of the petition date or surrender of possession, abandon remaining personal property, and approve omnibus procedures for future rejections and assumptions. Further closures are expected.
- True Food Kitchen ("True Food"). On October 4, 2026, the restaurant operator filed in the Southern District of Texas, closing 12 of its 46 restaurants at filing. It intends to monetize its estate through a section 363 sale and assignment of its remaining leases, and has already agreed to assign certain leases.
Considerations for Landlords
- The automatic stay bars collection of prepetition rent, default notices, lease termination, and setoff against security deposits. Drawing on a letter of credit typically is not stayed, but consult counsel first; willful violations can result in sanctions.
- Section 365(d)(3) and (d)(4) of the Bankruptcy Code govern a debtor’s obligations during the case and the timeline for deciding the fate of each lease:
- Postpetition performance. Under section 365(d)(3), a debtor must timely perform all obligations under an unexpired nonresidential real property lease that arise from and after the petition date until the lease is assumed or rejected, including rent, taxes, CAM, insurance, and nonmonetary covenants. The court may defer obligations arising within the first 60 days of the case for cause, but not beyond that 60-day window. Postpetition rent that goes unpaid is generally an administrative expense, and landlords may move to compel payment or for relief from the stay. Courts remain divided on “stub rent” for the partial month in which the petition is filed: some apply a billing-date approach (rent billed prepetition is a prepetition claim), while others prorate, so the filing date and the lease’s rent due date matter.
- Deadline to assume or reject. Under section 365(d)(4), a lease is deemed rejected and the debtor must immediately surrender the premises if it is not assumed or rejected by the earlier of (i) 120 days after the petition date or (ii) entry of a plan confirmation order. The court may extend the 120-day period once by up to 90 days, on motion of the debtor or the landlord, for cause shown before the period expires. Any further extension requires the landlord’s prior written consent, giving landlords meaningful leverage to condition consent on payment of stub rent, resolution of cure amounts, or other protections.
- Practical note. Because confirmation can accelerate the deadline, fast-track cases matter. Leslie’s targets emergence within 110 days and its plan would deem assumed every lease not rejected by the effective date, so landlords should expect cure notices and objection deadlines to arrive quickly and should calendar them carefully. Conversely, in a sale-driven case such as True Food or Meritage, landlords should anticipate requests for the 90-day extension and for consent beyond it while a buyer is identified.
- Landlords of closing locations should monitor retroactive rejection dates and personal property abandoned in the premises. Rejection generally requires only a showing of business judgment and is difficult to contest.
- Landlords of continuing locations should verify asserted cure amounts and insist on adequate assurance of any proposed assignee’s performance. For Meritage, that assurance depends on franchisor approval of the buyer.
- Landlords who acquired property in recent sale-leasebacks should review their leases for bankruptcy-sensitive terms, including rent structure, guaranties, and any recharacterization risk.
- Rejection damages are capped at the greater of one year’s rent or 15% of the remaining term (not exceeding three years) and are treated as general unsecured claims, which often recover little. Leslie’s plan proposes a $500,000 pool for all such claims.
We Can Help You
Barack Ferrazzano’s Bankruptcy & Creditor Rights Group represents landlords in myriad workout scenarios, including in large national chapter 11 cases, and can assist with rejection notices, cure disputes, assignment proposals, and claims.
