New Jersey Bankruptcy Court: Motion Not Necessary to Assume Unexpired Lease

The ability to assume, assume and assign, or reject executory contracts and unexpired leases is a power central to ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to maximize the value of the estate for the benefit of all stakeholders. Although the Bankruptcy Code establishes deadlines by which a trustee or DIP must assume or reject contracts or unexpired leases, it does not lay out what a trustee or DIP must do to assume or reject those contracts or leases.

The resulting lack of guidance has caused disagreement among the courts concerning the proper procedural vehicle for assumption or rejection. Some have concluded that only a motion, as suggested by Rules 6006 and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), is sufficient for assumption or rejection, but other courts have not foreclosed the possibility of alternative means for assumption or rejection. In In re Rite Aid Corp., 23-18993, 2024 WL 4715336 (Bankr. D.N.J. Nov. 6, 2024), the U.S. Bankruptcy Court for the District of New Jersey weighed in on this debate, ruling that, under the unambiguous terms of the Bankruptcy Code and in line with its underlying purpose, a trustee or DIP need not file a motion to assume an unexpired lease. Instead, the court concluded, a less formal notice filed with the court, even as part of a chapter 11 plan supplement, sufficed under the circumstances. 

Assumption and Rejection of Executory Contracts and Unexpired Leases in Bankruptcy 

Section 365(a) of the Bankruptcy Code gives the trustee (or DIP, pursuant to section 1107(a)) the power to assume (reaffirm) or reject (breach) the debtor's "executory" contracts or unexpired leases, subject to bankruptcy court approval. Section 365(d) lays out various deadlines by which a trustee must assume a contract or lease. 

In a chapter 7 case, the trustee must decide whether to assume or reject an executory contract or unexpired lease of residential real property or a personal property lease within 60 days after entry of the order for relief (in voluntary cases, the petition date) unless the court, for cause, extends the assumption or rejection deadline. See 11 U.S.C. § 365(d)(1). If the trustee fails to act within the 60-day period, the contract or lease is deemed rejected. 

In a chapter 9, 11, 12, or 13 case, the trustee or DIP may assume or reject an executory contract or unexpired residential lease or a lease of personal property at any time before confirmation of the plan. However, the court, upon the request of a non-debtor counterparty, may order that a contract or lease be assumed or rejected prior to that time. See 11 U.S.C. § 365(d)(2). 

Pursuant to section 365(d)(4), in a case under any chapter of the Bankruptcy Code other than chapter 15, an unexpired lease of nonresidential real property with respect to which the debtor is the lessee will be deemed rejected if the trustee or DIP does not assume or reject the lease by the earlier of: (i) the date that is 120 days after the date of entry of the order for relief; or (ii) the date of entry of an order confirming a chapter 9, 11, 12, or 13 plan. The bankruptcy court may, under section 365(d)(4)(B), extend the time for assumption or rejection for 90 days on motion of the trustee or a lessor. 

The Bankruptcy Code does not specify any particular steps the trustee or DIP must take to assume, assume and assign, or reject a contract or lease. However, Bankruptcy Rule 6006(a) provides that "[Bankruptcy] Rule 9014 governs a proceeding to assume, reject, or assign an executory contract or unexpired lease, other than as part of a plan." Bankruptcy Rule 9014(a) states that, "[i]n a contested matter not otherwise governed by these rules, relief must be requested by motion." In addition, Bankruptcy Rule 9013 provides in relevant part that "[a] request for an order must be made by written motion" unless an application is authorized by the Bankruptcy Rules or the request is made during a hearing. 

Guided by the statute and these procedural rules, many courts have concluded that a motion is the exclusive vehicle for assumption, assumption and assignment, or rejection. See generally Collier on Bankruptcy ("Collier") ¶ 365.05 (16th ed. 2025) (noting that "[e]xcept for assumption in a plan, assumption may be accomplished only by a motion"). 

According to a leading commentator, the "overwhelming majority" view is that "the trustee can manifest the intention to assume or reject an … unexpired lease only by formal motion." Id. at ¶ 6006.01[2][a]. The minority view, however, recognizes implied, tacit, or informal assumption. Id. (stating that "[d]espite the fact that Rules 6006(a), 9014, and 9013 require the filing of a motion to assume or reject an executory contract or unexpired lease, the doctrine of tacit, or informal, assumption survives, but only in a small minority of older cases"). 

Rite Aid

Rite Aid Corporation and its affiliates (collectively, the "debtors") sought chapter 11 protection on October 15, 2023, in the District of New Jersey. On the petition date, one of the debtors was a lessee under an unexpired nonresidential lease (the "Lease") with Fair Oaks, LLC ("Fair Oaks") for real property in California. On December 20, 2023, pursuant to section 365(d)(4)(B), the bankruptcy court entered an order extending the time for the debtors to assume or reject their nonresidential real property leases up to and including May 13, 2024 (the "Assumption Deadline").  

The debtors expressed their intent to assume the Lease several times prior to the Assumption Deadline. First, the debtors filed a notice of assumption of leases with a schedule of leases they intended to assume, including the Lease with Fair Oaks. The debtors also filed a draft schedule of assumed leases with a supplement to its second amended chapter 11 plan, again including the Lease.  

Finally, on May 13, 2024, the debtors filed a third amended plan supplement and attached a "Schedule of Assumed Executory Contracts and Unexpired Leases" (the "Assumption Schedule") that listed the leases it had decided to assume, including the Lease with Fair Oaks.  

However, the debtors did not file a motion to assume the Lease or to otherwise extend the Assumption Deadline beyond May 13, 2024.  

Fair Oaks subsequently filed a motion under section 365(d)(2) to compel rejection of the Lease. Fair Oaks contended that absent a formal motion to assume, notices of assumption such as the Assumption Schedule could serve neither to extend an assumption deadline nor to assume an unexpired lease under section 365. According to Fair Oaks, the Lease should therefore be deemed rejected because the Assumption Deadline had passed without a proper assumption. The debtors responded that the Assumption Schedule filed with the bankruptcy court and served on Fair Oaks gave Fair Oaks notice of their decision to assume the Lease, which they had therefore properly assumed.  

The Bankruptcy Court's Ruling

The bankruptcy court agreed with Fair Oaks that a timely motion is necessary to extend the deadline to assume or reject a nonresidential real property lease pursuant to section 365(d)(4)(B). Because the debtors did not file any such motion, the court found that the Assumption Deadline for the Lease remained May 13, 2024. 

The court disagreed with Fair Oaks, however, that the debtors failed to assume the Lease prior to the Assumption Deadline. U.S. Bankruptcy Judge Michael B. Kaplan looked to the language of the statute, its purpose, and persuasive case law to conclude that a motion is not required for assumption under section 365, and that the debtors had assumed the Lease via the Assumption Notice. 

According to the court, the text of the statute is dispositive. Section 365, the court noted, does not include an explicit requirement that a motion be filed to effectuate the assumption of a lease. Instead, section 365(d) merely provides that a lease will be deemed rejected if the trustee neither assumes nor rejects it by the specified deadline The court concluded that reading "assume" to mean "file a motion to assume" would be an impermissible "torturing" of the text of the statute. Rite Aid, 2024 WL 4715336, at *4. 

Judge Kaplan bolstered his reasoning by looking to other subsections of section 365. For instance, he noted that Congress did add an explicit requirement in section 365(d)(4)(B) that a motion be filed to obtain an extension of the deadline to assume or reject. Congress, the court reasoned, could have added such a requirement to the nearby section 365(d)(4)(A), but chose not to do so. Moreover, Judge Kaplan found that the word "assume" is used in other subsections of section 365, but reading "assume" to mean "file a motion to assume" in other subsections of the statute would produce absurd results. Id. 

The bankruptcy court also emphasized that its ruling was consistent with the purpose of section 365(d)(4): to provide a deadline by which a debtor must act and to give a landlord certainty regarding its property. The court concluded that this purpose is served when the debtor makes a decision regarding a lease and communicates that decision to the landlord appropriately, whether in the form of a motion or some other way. 

Outlook 

The ruling in Rite Aid cuts against the bright line rule adopted by the vast majority of bankruptcy courts; namely, that a motion, and a motion alone, is necessary for assumption of an executory contract or an unexpired lease. If it stands, the decision should be of interest to debtors and a cautionary tale for non-debtor contract or lease co-parties.  

A key takeaway for debtors is that, at least in the U.S. Bankruptcy Court for the District of New Jersey, a formal motion may not be necessary to assume an unexpired lease or an executory contract. Although courts are unlikely to embrace the long-discarded tacit assumption approach, they may be inclined to find that a lease or contract has been assumed in cases where the debtor explicitly stated its intent to assume in a document filed with the bankruptcy court and provided to the non-debtor co-party. 

If this approach becomes more acceptable, it would place the burden squarely on the shoulders of co-parties to exercise vigilance by carefully monitoring court filings that may impact their rights under a contract or lease, as distinguished from a formal motion to assume or reject.