Francesca’s is closing roughly 457 stores this year under Chapter 11, part of the 3,321 US store closures Coresight tracked in the first half of 2026.[1] Every one of those exits runs through a lease, and in a bankruptcy the order of operations is unforgiving: the estate sells the good assets first and decides which leases to keep afterward. As a Delaware bankruptcy judge noted in November, it “is not uncommon in modern chapter 11 practice” for a sale to close before the buyer has decided which leased premises it wants.[2]
A lease clause requiring a tenant to remove its equipment and hazardous materials at the end of the term is a return-condition obligation. When the tenant is in bankruptcy and the lease is rejected, the landlord’s cost of doing that work itself is a prepetition unsecured claim, not an administrative expense that gets paid in full, and the date the tenant physically walked out does not change that.
The debtor sold everything, then decided which leases it wanted. American Tire Distributors, among the largest replacement tire distributors in North America, sold substantially all of its assets to its prepetition lenders for approximately $600 million. The court approved the sale on February 11, 2025, and it closed on February 28. The purchase agreement gave the buyer designation rights: authority to direct the debtors to assume and assign leases to it, or to reject them, after the fact.[2]
Two Carolina facilities were rejected, and the contents stayed behind. The buyer directed rejection of the lease covering facilities in Lincolnton, North Carolina and Mauldin, South Carolina. The lease required the tenant, on expiration or earlier termination, to remove all property owned by the tenant or third parties and repair any damage caused by the removal. What the landlord got instead was forklifts, racks, and a 55-gallon drum labeled as containing hazardous materials. Clearing it cost almost $125,000.[2]
The landlord’s timing argument was the whole case, and it failed. The rejection notice was filed May 5, 2025, and the parties stipulated that rejection was effective May 30, 2025, when the plan went effective. Because the equipment had been left behind before that date, the landlord argued the obligation fell under Section 365(d)(3), which requires a debtor to perform its lease obligations during the period between filing and rejection. Judge Craig T. Goldblatt held the contention incorrect: a claim for violation of a return-condition provision “is paradigmatically a claim that is incident to the rejection of the lease,” so Section 502(g) speaks to it directly and controls over the more general provision.[2]
The general administrative-expense route closed for a factual reason worth noting. The court accepted that a tenant that damages property after the bankruptcy filing gives the landlord an administrative claim for that damage, and that incremental cleanup costs caused by post-filing conduct might follow the same rule. It did not need to decide, because nothing in the record suggested the premises were in worse condition on the rejection date than on the petition date. A landlord with dated photographs showing deterioration after the filing would have had a live argument.[2]
The claim against the buyer died on jurisdiction, not on the merits. The landlord argued that once the sale closed, the buyer owned the equipment sitting in the building, and that leaving it there was a trespass under state law. The court dismissed that claim for lack of subject-matter jurisdiction, holding that a post-confirmation dispute between two non-debtors with no effect on the estate does not satisfy the related-to test, and that supplemental jurisdiction is not available in bankruptcy. The dismissal was without prejudice to refiling in a court of competent jurisdiction, which means the landlord can still sue, somewhere else, later.[2]
The economics here are the same ones that make a restoration clause a bill the tenant pays to undo its own build-out, except that bankruptcy converts the bill into pennies on the dollar. Outside bankruptcy, a return-condition clause is a real obligation with a solvent counterparty behind it. Inside bankruptcy, it becomes a number in a claims register, and the landlord who wrote a careful removal clause ends up in the same line as the trade creditors.
Finding the removal obligations before the tenant files#
Acrebase extracts surrender, removal, and restoration provisions across a portfolio and flags which of them sit against tenants in weak credit positions, along with the security that actually backs each lease: the letter of credit, the guaranty, the deposit. Knowing that a removal obligation is worth what the collateral is worth, rather than what the clause says, is the difference between drafting for a healthy tenant and drafting for the one that files.
If you are a landlord, size your security to the cost of clearing and restoring the space, not just to a few months of rent, and if a tenant in distress starts moving out, document the condition of the premises on the petition date and after. If you are a tenant or a buyer using designation rights, understand that leaving equipment behind converts a contractual duty into an unsecured claim, which is a real economic advantage and also a fight your landlord may pursue against you personally in another forum.
Footnotes
[1] Coresight Research midyear data through July 3, 2026, reported in Yahoo Finance, “Store closures update 2026” — 3,321 US store closures tracked in the first half of 2026, with Francesca’s closing roughly 457 stores following its Chapter 11 filing. https://finance.yahoo.com/small-business/articles/store-closures-2026-see-list-114400390.html
[2] In re Oldco Tire Distributors, Inc. (f/k/a American Tire Distributors, Inc.), Case No. 24-12391 (CTG), Memorandum Opinion (Bankr. D. Del. Nov. 7, 2025), Docket No. 1333 — landlord HEF NC SC QRS 14-86, Inc. sought an administrative claim for almost $125,000 in removal costs at facilities in Lincolnton, North Carolina and Mauldin, South Carolina after the debtors, at the direction of buyer Asphalt Buyer II LLC, rejected the lease effective May 30, 2025; motion denied and the claim against the buyer dismissed for lack of subject-matter jurisdiction. https://www.deb.uscourts.gov/sites/deb/files/opinions//2025.11.07%20Oldco%20(admin%20claim).pdf
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