Real Estate Committee

ABI Committee News

Absolute Assignment of Rents Does Not Always Bar Debtor’s Use of Business Income for Reorganization Efforts


Two recent decisions have provided guidance concerning the scope of a lender’s right to collect “rents” generated by a debtor in possession, and the debtor’s corresponding ability to use those “rents” in furtherance of its restructuring efforts: In re Ocean Place Development LLC1 and In re Soho 25 Retail LLC.2 The issue of whether certain post-petition income generated by a debtor constitutes property of the estate under § 541(a) of the Bankruptcy Code was at the forefront in these cases.

In both cases, the debtors granted security interests to their respective lenders, including pre-petition assignments of leases and rents,3 in connection with certain financing transactions, pursuant to which the debtors made present assignments in favor of their lenders of the right to collect rents under secured leases. The debtors ultimately defaulted under their loans, and the lenders obtained judgments of foreclosure and scheduled foreclosure sales for the debtors’ assets. However, before the foreclosure sales could take place, each debtor filed for relief under chapter 11.

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Right to Protection of Leasehold Interest in Real Property in a § 363 Sale by a Debtor/Landlord: Section 363(f) vs. Section 365(h)


Two sections of the Bankruptcy Code seemingly stand at odds regarding the protections offered to lessees of real property owned by a bankrupt debtor. Section 365(h) strongly protects a lessee’s right to possession of real property in the face of debtor’s rejection of the lease. The legislative history of § 365(h) indicates that Congress had a desire to protect a lessee’s expectations in real estate transactions. However, § 363(f) allows a trustee or debtor in possession (DIP) to sell real property free and clear of “any interest” in such property, including a leasehold interest.

The questions become (1) whether the lessee’s possessory rights are only protected if the lease is rejected or, alternatively, whether the possessory right can be defeated through a Section 363(f) sale and (2) if a § 363(f) sale can dispose of a tenant’s property rights, whether the lessee is entitled to adequate protection for its possessory interest. This article will explore the split among the courts regarding the relationship between § 363(f) and § 365(h).

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Review Educational Materials from the Northeast Consumer Forum

Conference Materials from the 16th Annual Southeast Bankruptcy Workshop are Available Online

Panelists for the session "Today's Chapter 7" provided readers with case study and discussion on topics such as exemptions, bank account freezes, pre- and post-BAPCPA issues related to inherited IRAs, judicial estoppel and a variety of claim objection issues. Neil C. Gordon of Arnall Golden Gregory LLP in Atlanta moderated the session. Panelists included Mary Beth Ausbrooks of Rothschild & Ausbrooks, PLLC in Nashville, Tenn. and the Hon. Catherine Peek McEwen of the U.S. Bankruptcy Court for the Middle District of Florida in Tampa. Click here to the view the materials for "Today's Chapter 7."

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