By Rose Krebs

Law360 (April 14, 2020, 9:48 PM EDT) -- Several Forever 21 store landlords are urging the Delaware bankruptcy court to reject a proposal by the company's Chapter 11 buyer to alter procedures for going out of business in response to the coronavirus pandemic, arguing new measures such as suspending rent and preventing repossessions would be unfair to them.

In a series of objections over the past week, certain landlords criticized a proposal submitted earlier this month by buyer F21 OpCo LLC aimed at addressing "current circumstances and the changing landscape of retail and social interaction" amid the public health crisis.

"The buyer is attempting to create, out of thin air, and to graft into the sale order, a force majeure escape clause provision so that the buyer can realize the optimal solution to its problems in the face of the Covid-19 pandemic," landlord Brooks Shopping Centers LLC said in a Tuesday court filing.

The landlord contends that "such an escape clause does not exist in the sale order and this court cannot make such a change to the sale order simply because the buyer believes that equity demands such a change."

Brooks said in its brief that that F21 is seeking court approval to authorize it "not to pay rent, prevent [Brooks] from repossessing its premises, and authorize [F21] to conduct [going-out-of-business] sales at some undetermined point in the future."

Allowing F21 to do so would be harmful and unfair to landlords, Brooks argued.

In its motion, F21, which purchased Forever 21's assets earlier this year for roughly $81 million, asserts that it needs court relief as the COVID-19 outbreak has prevented it from conducting going-out-of-business sales and liquidating inventory at certain locations.

F21 said it has provided notices to reject 64 leases effective March 31, and that it may reject more leases by the April 26 deadline.

"However, due to the impact of COVID-19, the stores have not been open, and in most cases have not even accessible, for some time and the buyer is therefore unable to remove its inventory from the stores as contemplated by the sale order without violating applicable law or putting its employees in harm's way," F21 asserts.

F21 seeks to have the court modify a sale order approved in February so that landlords whose leases are rejected won't be able to dispose of inventory "until after the buyer has had a reasonable opportunity to either sell such property pursuant to a [going-out-of-business] sale or otherwise remove and dispose of the property in an orderly fashion in a reasonable period of time."

Also, the motion seeks to have lease rejections be made effective even if the debtors are unable to remove inventory and allow F21 to conduct going-out-of-business sales and store closings "for a period of time commencing when the buyer has re-gained the ability to open and operate such stores and hold such sales pursuant to a safe and reasonable process generally consistent with the process set forth in the sale order."

The request has been criticized by several landlords and has garnered objections leading up to Tuesday's deadline.

In another objection filed Tuesday, Centennial Real Estate Company LLC and a group of other landlords asserted that F21's proposal is not an "equitable solution" or fair way of dealing with the coronavirus crisis.

"Everyone is facing unprecedented challenges due to the COVID-19 pandemic. The effects are not limited to any one sector of the populace, and the financial impact is not limited to a single section of the economy," Centennial's filing said. "In the retail world, both tenants and landlords are suffering from store closures from the necessary lockdowns that are in place to stop the spread of this horrible virus."

The landlords asserted that "this is a situation and time in our country where parties should be working together to find reasonable solutions to the challenges that we are all facing."

However, instead of seeking a "cooperative solution," the landlords say F21 is attempting "to force a draconian remedy on the landlords" that would "put all of the cost, expense and risk of the store closures on the landlords."

The landlords also argue that F21's proposal would violate the bankruptcy code and "general principles of property law."

"A rejection of the leases without surrender of the premises is not a rejection, and a solution that puts all of the cost and risk of loss on one party is not an equitable solution," Centennial contends.

Forever 21 and certain affiliates filed for Chapter 11 protection in late September, listing $195 million in secured asset-based loan debt and $20 million in secured term loan debt, along with $13.2 million in outstanding notes. The company's debt also included $350 million in trade debt owed to vendors, according to court filings.

The chain, which had initially said it could close up to about 200 of its 541 U.S. locations, told the court in November it had secured enough rent concessions to cut the closures down to roughly 88 locations.

Counsel for the parties did not immediately respond to requests for comment Tuesday.

Forever 21 is represented by Laura Davis Jones, James E. O'Neill and Timothy P. Cairns of Pachulski Stang Ziehl & Jones LLP, and Joshua A. Sussberg, Aparna Yenamandra and Anup Sathy of Kirkland & Ellis LLP.

F21 is represented by Robert J. Dehney, Paige N. Topper and Matthew B. Harvey of Morris Nichols Arsht & Tunnell LLP, and Brad Eric Scheler, Gary L. Kaplan and Jennifer L. Rodburg of Fried Frank Harris Shriver & Jacobson LLP.

Brooks is represented by Susan E. Kaufman and M. Claire McCudden of the Law Office of Susan E. Kaufman LLC, and Niclas A. Ferland and Ilan Markus of Barclay Damon LLP.

Centennial and certain other objecting landlords are represented by Leslie C. Heilman, Laurel D. Roglen and Dustin P. Branch of Ballard Spahr LLP.

The case is In re: Forever 21 Inc. et al., case number 1:19-bk-12122, in the U.S. Bankruptcy Court for the District of Delaware.

--Additional reporting by Rick Archer, Jeff Montgomery and Vince Sullivan. Editing by Adam LoBelia.

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