My Landlord is in Ch. 7 Bk and Im scared ill LOSE MY COMMERCIAL LEASE

[Ws2006]

The landlord is in ch. 7 bk and the trustee has accepted an offer without my lease. I thought under section 365 i am protected!

From all the research i have done, i came to the point that no one knows if section 363 is above 365 or the other way around.

I have my life into this buisness and if they kick me out (which they are trying) i will lose everything i worked for.

My lease is recorded with the county.

Any information would be great.

I already have a lawyer but i am trying to get ANY other info i can to try and help my case!

Thank you in advance!

[tcreegan]

Hi Ws,

I thought under section 365 i am protected

Just for clarification, section 365 of ...? CA property law? Federal BK code? Some other weird CA law?

if they kick me out (which they are trying) i will lose everything i worked for

More clarification; ...you can't move to another location?

Hope you have a great Thanksgiving and don't get kicked out!

Tom in Colo

[Ws2006]

I am in California.

I cant move to another location because i have spent 50k in tenant imporvments. And it would cost me another 50k to move my business and START OVER. (been in business for 4 years) Ill lose all my customers (wireless shop)

Also i have a geart location! if i move there are no other locations in the area. Also my wireless company has to apporve the location. So theirs a chance i wont even be able to open somewhere else.

[TBA]

I do not know where you are, and how your local laws apply, but in FLA, the statute for commercial property basically reads, "See your lease"...

That being said, you may want to read your lease and make sure it lists the landlord AND its successors, etc... If your lease is recorded, I would imagine that the bank will get a certified copy from the county and honor it. As your landlord proceeds with his/her ch7, and the bank starts the legal proceedings for foreclosure, they will probably request a receiver be appointed to collect rent and pay expenses. That could even continue to be your present landlord.

Once the foreclosure starts, you will be served papers with the information about the bank and the foreclosure proceedings. That is when I would start working with the attorney to guarantee you are protected.

Until then, just make sure you document your payments to your landlord just in case the bank tries to say you broke the lease by not paying or meeting other requirements (such as insurance, etc).

GL!!!

[tcreegan]

1 mystery solved! 50K is definitely reason to not move....

How about 'section 365' ?

[Ws2006]

section 365 says..... they need to give me adequate protection or i can choose to remain in my lease.

[Ws2006]

Its not going into forclosure, Its being sold in auction. There is a lot of equity in the building to pay off the landlords debts

[despritfreya]

Ok, you folks are going to HATE me for this post. Sorry, but since I have absolutely NO expertise in the area of a Trustee's rights as it pertains to him being the lessor, I just spent that last hour researching this issue and I found one case right on point but it is out of Florida. The balance of this post is a "cut and paste" from that case. If anyone can make heads or tails of it you are a genius. I do not know if the holding of the case would apply in California but here it goes anyway.

__________________

In re Mmh Automotive Group, LLC, 385 B.R. 347 (Bankr. S.D.Fla., 2008)

Facts:

1. MMH files Chapter 7;
2. Chapter 7 Trustee obtains title to real property;
3. CPH has a billboard lease attached to the real property. The lease is not recorded but is referenced in other documents. CPH is the “tenant/lessee” and wants to keep the lease;
4. Chapter 7 Trustee sells the building to South Motor “free and clear of any interest in the property”, including the billboard lease pursuant to 11 USC 363. The Trustee fails to notify CPH of the sale motion;
5. South Motor files an adversary seeking a determination that CPH’s lease is gone;
6. CPH argues that since it did not receive notice of the sale motion it cannot be divested of its leasee status;
7. South Motor argues that CPH was not entitled to notice of the sale under Florida law since the lease was not recorded.

The following (sorry - very, very long and confusing) is what the Court said (in part - I tried to cut it down a bit):

THE "CONFLICT" BETWEEN SECTIONS 363 AND 365

To decide what is the proper remedy, I must determine what would have been the result if CPH "had both received notice of, and objected to, the sale. CPH has acknowledged it is not seeking greater rights than it would have been entitled to had it received notice. Thus, it is necessary to begin by resolving whether the Trustee would have the right to sell the Real Property free and clear of the interests of CPH in accordance with 11 U.S.C. § 363(f).

The first issue I must address is whether section 363(f) can ever apply to the sale of property subject to a lease, or whether, as CPH argues, I can only look to the provisions of section 365(h). Assuming that I find section 363(f) does apply to the sale of real property that is subject to a lease, I must then determine whether, under this section, the Trustee had the authority to sell the Real Property free and clear of the Billboard Lease.

Section 363(f) of the Bankruptcy Code authorizes a trustee to sell property of the estate free and clear of certain claims, liens and interests, subject to certain conditions and limitations. Section 365 of the Bankruptcy Code dictates the requirements pursuant to which a trustee may assume, assume and assign, or reject executory contracts and unexpired leases. While there does not appear to be a dispute that a leasehold interest is an interest for purposes of section 363(f), the dispute is the manner in which, and under what procedure, that interest can be compromised.

There is a division in the bankruptcy courts regarding the interrelationship, if any, between section 363(f) and section 365(h) with respect to the transfer of property free and clear of leasehold interests. There are cases that hold the more specific provisions of section 365(h) dictate the manner and procedure by which a debtor may terminate its interests in a lease; those specific provisions, rather than the more general provisions of section 363(f), must be followed. Conversely, other courts have held that statutory construction dictates the two sections must be read in concert and that, notwithstanding section 365(h), a debtor may sell a property free and clear of a leasehold interest if one of the conditions of section 363(f) can be satisfied.

In the instant case CPH claims that its rights in the Real Property have been statutorily guaranteed by section 365(h), which provides that, upon rejection of a lease in which the debtor is lessor, the non-debtor party has the option to retain its possessory leasehold interest. CPH contends that, because the Trustee did not assume the Billboard Lease within 60 days, the Billboard Lease was deemed rejected. Since, according to CPH, the Billboard Lease was deemed rejected, CPH argues its possessory interests remain inviolate and the Trustee could not use section 363(f) to dispossess CPH of its leasehold rights. CPH incorrectly assumes the Billboard Lease had been rejected at the time of the sale. There is no "deemed rejection" of a non-residential lease when the debtor is the lessor. Nonetheless, whether the Billboard Lease had been rejected does not impact resolution of the issue. Indeed, in each of the cases cited by CPH, neither assumption nor rejection of the lease had yet occurred.

South Motor relies on the Qualitech decision in which the Seventh Circuit held that rules of statutory construction require sections 363(f) and 365(h) to be read so that each statute is given full effect, if possible. The Seventh Circuit concluded that a property subject to a leasehold may be transferred free of the leasehold interest, if one of the conditions of section 363(f) can be satisfied.

It is apparent that the two statutory provisions [11 U.S.C. § 363(f) and 11 U.S.C. § 365(h)] can be construed in a way that does not disable section 363(f) vis a vis leasehold interests. Where estate property under lease is to be sold, section 363 permits the sale to occur free and clear of a lessee's possessory interest — provided that the lessee (upon request) is granted adequate protection for its interest. Where the property is not sold, and the debtor remains in possession thereof, but chooses to reject the lease, section 365(h) comes into play and the lessee retains the right to possess the property. So understood, both provisions may be given full effect without coming into conflict with one another and without disregarding the rights of lessees.

If the court were to grant the Debtor's Sale motion [seeking to sell property free and clear of a tenant's interest], the provisions of § 365(h) would be eviscerated. In other words, the Debtor would be doing indirectly what it could not do directly, namely, dispossessing the tenant.

In In re Churchill Prop. Ill, L.P., 197 B.R. 283 (Bankr. ND Ill 1996) the court rejected the application of section 363(f) to a debtor's attempt to sell an apartment building free and clear of a washing machine lease. The court, citing principles of statutory interpretation that "the specific prevails over the general," held "[s]ince Congress decided that lessees have the option to remain in possession, it would make little sense to permit a general provision, such as section 363(f), to override its purpose."

In the case of In re Taylor, 198 B.R. 142 after determining the leases in question were not in bona fide dispute, the court reviewed the legislative history of section 363 and determined that the rights of a tenant to retain possession in the face of a lease rejection are paramount, and held that section 365 provides the sole avenue for transfer of property subject of a leasehold interest.

Taylor and other cases all relied in part on the case LHD Realty Corp v. Metro Life Ins. Co. In which case the court held that section 365 was “the exclusive remedy available to a debtor in an executory lease situation”. However, that statement must be read in the context of the distinct facts before the court in LHD. In LHD the debtor asked the court, based on 11 USC 105 and the doctrine of commercial impracticability, to allow the debtor to terminate or modify the under-marked lease encumbering the property the debtor did not intend to sell. The court noted that the express provisions of section 365 gave the debtor landlord two options - rejection, in which case the tenant could stay in possession, or assumption, which assumption did not include non-consensual modification of the assumed lease. The court held it was not free to look at equitable doctrine such as commercial impracticability to provide the debtor with options not provided by the Bankruptcy Code. The holding of LHD had nothing to do with the sale or transfer of property or the resolution of the meaning of more than one statute section and its holding in inapplicable to the issue before me. Moreover, each of these cases has failed to recognize two fundamental premises. First is the rule of statutory construction, dictated by the United States Supreme Court, and followed by the Seventh Circuit in Qualitech, that "courts shall interpret statutes when possible so as to avoid conflicts between them if such construction is possible and reasonable.

An underlying premise of the Qualitech decision is the Seventh Circuit's statement that there is nothing in section 363(f) that suggests its provisions are subject to those of section 365(h). Nowhere in either section 363(f) or section 356(h) [sic] is there a cross-reference indicating that the broad right to sell estate property free of "any interest" is subordinate to the protections that section 365(h) accords to lessees. The omission suggests that Congress did not intend for the latter section to limit the former.

The Trustee's right to sell the Real Property free and clear of all interests must undisputedly recognize CPH's interests under the Billboard Lease, whether those rights were in suspense pending assumption or rejection, or had "ripened" due to rejection or assumption. If a non-debtor's possessory rights are paramount, the priority of those rights should not be impacted by whether those possessory rights have already vested by virtue of rejection or assumption prior to an attempt to sell the underlying fee. Had the Debtor or Trustee assumed the Billboard Lease prior to sale of the Real Property, the terms of the Billboard Lease would govern the landlord-tenant relationship. Similarly, had the Trustee rejected the Billboard Lease prior to the sale of the Real Property to South Motor, CPH's possessory interest in the leasehold would continue to be subject to the rights and obligations under the Billboard Lease, subject only to the modifications authorized by section 365(h). Thus, any sale pursuant to section 363(f) necessarily takes into account any rights of a non-debtor party to an unexpired lease pursuant to section 365(h), when those rights are applicable. However, MMH's bankruptcy did not confer any greater legal rights on CPH under the Billboard Lease or applicable non-bankruptcy law.

Section 363 authorizes a trustee to sell property of the estate free and clear of an interest only if one of the elements of section 363(f) can be met. Section 363(f) allows a trustee to sell property free and clear of any non-debtor interest in such property, only if — (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest.

South Motor contends the Real Property could be sold free and clear of the Billboard Lease because the Billboard Lease was not recorded. This argument is inconsistent with Florida law. While it is undisputed that the Billboard Lease is unrecorded, it is also undisputed that the RGA Deed specifically references the Billboard Lease. Under Florida law, all subsequent purchasers of real property are deemed to have constructive notice of the existence and contents of any document filed in the record chain of title, and any facts they could have ascertained if they had made a reasonable inquiry regarding the record or its contents.

_______________________________________

There is more to the opinion but I got tired of cutting and pasting. I am not even sure of the outcome but I think the lease stuck.

Des.

[Ws2006]

Great find despritfreya, but by reading that all i got was a headache lol

What does it say in my case? Im in California and the trustee wants to sell the building quick to make his money and move on. But i put 4 years into this business and i cant move because im known in my area. Ill lose 50% of my business if i relocate

[despritfreya]

Great find despritfreya, but by reading that all i got was a headache lol. What does it say in my case? Im in California and the trustee wants to sell the building quick to make his money and move on. But i put 4 years into this business and i cant move because im known in my area. Ill lose 50% of my business if i relocate

Sorry for the headache. I got one too. I think, but I simply am not sure, that the Trustee cannot invalidate your lease without your approval. I do not know how this works and it appears very complicated. I must admit that in my many years as a bk attny, I have not come across this issue. Clearly you will object to any sale that trys to divest you of your leasehold interest.

You indicated you have an attorney. I will assume this attorney has experience in these matters. I will assume he is familiar with the case law. Since this appears to be a complex area of the law, I, as an attorney, would not take offense if my client referred me to a specific case. I would suggest that on Monday you discuss with him the case cited above and see what he thinks. In the mean time, nothing is happening over night and you should enjoy your holiday.

Des.

[Ws2006]

Haha that you are right! But my lawyer himself hasn't seen a case like mine. No one I've talked to has. It just kills me knowing there's a chance I can lose eveything I worked for. If you can msg me your contact info and I can call u and explain in detail what is going on. But other then that thx for allllllll your input!

Happy thanksgiving.

And of course to others.... more info would be great!

[Ws2006]

Bump for more input from you guys!

Thx

[despritfreya]

If you can msg me your contact info and I can call u and explain in detail what is going on.

If you are asking this of me I cannot honor your request. You can PM me but I simply have no additional info. Remember, I did some cursory research and have never seen this issue before therefore I really don't have an answer. You need to find an attny in California who handles complex matters that arise out of bk. A sole practitioner or small consumer law firm is probably not the best choice. You probably want to hire a "big gun". I have one in mind but I think it is a violation to post a specific name. If someone chimes in that it is not (the firm is a national firm) then I will post it here.

Des.

[Ws2006]

If you can read this article real quick


google this........My landlord just filed for bankruptcy—what happens now? and its the first link

Thank you again!

And also pm me the contact info

[Ws2006]

Bump