Daily Development for
Tuesday, November 14, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

BANKRUPTCY; LEASES: Lessee's filing of Chapter 13 petition after issuance of a warrant of eviction in a holdover proceeding does not effect an automatic stay of execution of warrant. Radol v. Centeno, 627 N.Y.S.2d 887 (Civ. Ct. 1995).

Under New York law the issuance of a warrant of eviction annuls landlord-tenant relationship so, the court concludes, there is no property interest against which the automatic stay acts. The court disregards several cases from other jurisdictions holding that there is a continuing "equity of possession" that cannot be affected by the automatic stay. The court does not tell us whether the real estate is residential or non residential.

Comment: In fact, the issues involved in this case are far more subtle than might first appear. It is first important to differentiate between the issue of assumption and transfer of leases versus termination of possession. Terminated leases are no longer "property of the estate." The trustee has no right to assume them. 365 (c) (3) (non residential leases) Therefore, it is always a good idea to terminate long term leases promptly on default. Although there are some arguments otherwise, landlords have a good chance that this will end any argument about the estate's future rights of assignment as to non-residential leases. A recent bankruptcy court decision applied the same analysis to residential leases. Robinson v. Chicago Housing Authority, 54 F.3d 316 (7th Cir. 1995). (Fact that there is no language in Bankruptcy Code specifically providing that residential leases cannot be assumed after termination is not an indication that they can be. Once leases are terminated, the estate has no right to assume them.)

But does the general concept that terminated leases are not "property of the estate" mean that any action with respect to rights arising under such leases fall outside of the Bankruptcy laws?

Under 362 (a) (3) the automatic stay bars "any act to obtain possession of the property of the estateor of property from the estate or to exercise control over property of the estate." In a commercial lease context, surely the personal property on the premises is property of the estate. In a residential lease, the property may or may not be property of the estate.

First, there is the issue of personal property on the premises. In an eviction action, the evicting party will take control of that property at least for purposes of putting it out on the street. A termination of the lease does not terminate the tenant's interest in this property. It would appear that Section 362 (a) (3) would stay an eviction that would have the purpose and effect of "controlling" this property.

Then there is the possession of the property itself. It may indeed not "belong" to the estate, as the leasehold interest has been terminated. But it is in the possession of the estate. The above section stays "any act to obtain possession . . . of property from the estate."

This lower New York court decision, of course, will be cold comfort to a landlord initiating eviction proceedings and then challenged with contempt proceedings in federal Bankruptcy court. Why not go into the bankruptcy court, get an order for the payment of rent for a month or two as a condition of continued possession, and then obtain possession after an orderly disbursement of the debtor's possessions? This complicates matters with providing access to a new tenant, of course, but it skirts the danger of confrontation with the bankruptcy court.

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