Glossary

Executory Contract

A contract under which material performance remains due from both parties as of the bankruptcy filing date, such that either side's failure to complete performance would constitute a material breach — a classification that determines whether Section 365's assumption-or-rejection framework applies to that agreement at all.

Whether a given CRE-related agreement qualifies as executory is a frequently contested threshold question, since Section 365 governs only true executory contracts and unexpired leases, not fully performed agreements or purely one-sided remaining obligations. Common CRE-adjacent examples beyond unexpired leases — themselves the most frequently litigated category — include construction and development agreements with continuing obligations on both sides, ground leases, purchase and sale agreements where closing has not yet occurred, franchise and property management agreements, and reciprocal easement or operating agreements between adjacent owners. The classification matters enormously in practice: a rejected executory contract leaves the non-debtor counterparty with only a general unsecured claim for damages, while assumption obligates the debtor to cure existing defaults and provide adequate assurance of future performance. Because of this asymmetry, parties negotiating long-term CRE agreements with a counterparty carrying meaningful credit risk increasingly build bankruptcy-specific protections into the contract at the outset, even though outright 'ipso facto' clauses purporting to terminate the contract automatically upon a bankruptcy filing are themselves generally unenforceable under the Bankruptcy Code.