On March 23, 2017, the bankruptcy lifted the automatic stay for Peak Leasing with regard to one of four trailers Mr. Price had obtain from Peak and took under advisement whether the remaining claims were “true leases” or disguised PMSIs. To determine such the bankruptcy court applied the UCC “Bright-Line” Test, which provides as follows:
A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and:
(1) The original term of the lease is equal to or greater than the remaining economic life of the goods;
(2) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;
(3) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or
(4) The lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.… Read More
As part of its Chapter 11 reorganization Bally Total Fitness of the Mid-Atlantic assumed a lease with Friday Investment, which had originally included a guaranty by Bally Holding. When Bally Mid-Atlantic later defaulted, Friday Investments sought to enforce the guaranty against Bally Holding. Bally asserted that while the lease had been assumed, the guaranty was discharged.
In a divided opinion, the majority of held that under North Carolina law a guaranty is a separate contract from the underlying obligation, Tripps Rests. of N.C., Inc. v. Showtime Enters., Inc., 164 N.C. App. 389, 391, 595 S.E.2d 765, 767 (2004), with “[t]he strict independence of the two separate contracts is “not affected by the fact that both contracts are written on the same paper or instrument or are contemporaneously executed.” There remained, however, a genuine issue of material fact whether the guaranty was “required to be maintained” by the assumption or discharged.… Read More
Because of the language of the lease, the bankruptcy court held that a lease had terminated (and consequently could not be assumed in a later bankruptcy case) following default and written demand by the Leasor of payment of past due rent within 10 days. Specific notice of termination of the lease was not required.
For a copy of the opinion, please see:
Salon America- Date of and Requirement for Termination of Lease.pdf… Read More
Bankruptcy Code Section 502(b)(6) caps a landlord’s claim against a debtor-tenant. Courts disagree on whether the provision caps damages for past breaches of non-rent lease covenants, such as a tenant’s contractual obligation to maintain and repair the premises. This Article contends that 502(b)(6) caps only those damages authorized under applicable nonbankruptcy law that are triggered by the termination of the lease, regardless of whether termination occurs before or after the petition date.
For a copy of the article, please see:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1980189… Read More
This article discusses the “fix” that Congress attempted to make in BAPCPA in 11 U.S.C. § 365(p)(2), by allowing Debtors, rather than just the Trustee, to assume leases for personal property, usually vehicles, in Chapter 7 cases.
The author finds that two questions arise from the statutory language, which is yet another example of the shoddy drafting that is a hallmark of BAPCPA. First, whether a debtor can effectively assume a lease under § 365(p)(2) without entering into a reaffirmation under § 524(c) and second, if assumption under § 365(p)(2) can occur without reaffirmation, are the debtor’s obligations under the lease subject to discharge, in effect providing for “ride-through”.… Read More