Lease-Specific Ipso Facto Clause
(Bankruptcy and Insolvency)

Summary

This lease-specific ipso facto clause is for use in contracts. This template includes practical guidance and drafting notes. Ipso facto clauses typically trigger the modification, default, or termination of a contract or lease based on the debtor's financial condition, insolvency, or bankruptcy filing. Ipso facto clauses are commonly found in many contracts and leases. Subject to certain exceptions, the Bankruptcy Code generally renders ipso facto clauses unenforceable. Section 365(e)(1) of the Bankruptcy Code generally bars a party to an executory contract or unexpired lease from terminating such agreement on account of a debtor's breach of an ipso facto clause. Section 541(c)(1)(B) provides that the debtor's property interests become property of the estate upon filing bankruptcy despite any ipso facto clause that effects a forfeiture, modification, or termination of the debtor's interest in property. Section 363(l) provides that the debtor may use, sell, or lease property under Section 363 notwithstanding any ipso facto clause. For more information on ipso facto clauses, see Assumption, Assignment, and Rejection of Executory Contracts and Drafting Strategies for Nondebtor Parties to Executory Contracts. For a general ipso facto clause, see General Ipso Facto Clause (Bankruptcy and Insolvency). For related content, see Tenant Bankruptcy Lease Clauses (Pro-Landlord). For treatises discussing this topic, see Collier Bankruptcy Practice Guide P 68.05 and Collier Real Estate Trans & Bankruptcy Code P 3.01.