A dispute currently exists among the courts as to whether a lease terminated due to a default is terminated “by the expiration of the stated term of the lease.” Sections 541(b)(2) and 362(b)(10) of the Bankruptcy Code provide:
(b) Property of the estate does not include –
(2) any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease before the commencement of the case under this title, and ceases to include any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease during the case[.]
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(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay –
(10) under subsection (a) of this section, of any act by a lessor to the debtor under a lease of nonresidential real property that has terminated by the expiration of the stated term of the lease before the commencement of or during a case under this title to obtain possession of such property[.]
Some courts have found that that the “stated term of the lease” means not only the calendar date specified in the lease as the end of the lease term, but also an earlier date on which the lease is terminated under the terms of the lease, under applicable nonbankruptcy law, due to the lessee’s uncured default prior to the expiration of its stated term. Cases cited for this proposition include In re Policy Realty Corp., 242 B.R. 121, 128 (S.D.N.Y.1999), aff’d on other grounds, 213 F.3d 626 (2d Cir. 2000); In re Moore, 290 B.R. 851, 880 (Bankr.N.D.Ala.2003); In re T.A.C. Grp., Inc., 294 B.R. 199, 202 (Bankr.D.Mass.2003); In re Tiny’s Café, Inc., 322 B.R. 224, 226 (Bankr.D.Mass.2005); In re Southcoast Exp., Inc., 337 B.R. 739, 742–43 (Bankr.D.Mass. 2006); and In re Lakes Region Donuts, LLC, 2014 WL 1281507, at *5 (Bankr.D.N.H. March 27, 2014).
The court in In re Indiana Hotel Equities, LLC, 2018 WL 3025293 (Bankr.E.D.Mich.), disagreed with this conclusion. The court stated that the expiration of the stated term of the lease means what it says; it does not mean a prepetition termination by a state court nor does it include an early termination through the lessor’s exercise of a contractual right to terminate the lease upon the debtor’s default. The court noted that the following cases have been cited as supporting this second position: Robinson v. Chicago Hous. Auth., 54 F.3d 316, 318 (7th Cir.1995); C.O.P. Coal Dev. Co. v. C.W. Mining Co. (In re C.W. Mining Co.), 422 B.R. 746, 755–57 (10th Cir.BAP 2010), aff’d, 641 F.3d 1235 (10th Cir.2011); and Acevedo v. SC Real Estate, LLC, 526 B.R. 761, 766 (N.D.Ill.2014).
The court stated that the facts under the lease at issue in its case supported this conclusion.
This conclusion is consistent with the language of the Lease in this case. Section 2 of the Lease, as amended by the Lease Amendment, explicitly and unambiguously defines the “Term” of the Lease as “a term of seventy-two (72) years, commencing July 1, 1962, and ending on June 30, 2034.” There is no language in the Lease’s definition of the Lease’s “Term,” or anywhere else in the Lease, that limits that stated term of the Lease by the IAA’s right, set forth in Section 15 of the Lease, to “cancel” the Lease “in its entirety” by written notice, upon the Debtor’s default.
Id. at *7. The court explained that Congress knew how to write a statute that applies broadly to all lease terminations, including early lease terminations. For example, it did so in §365(c)(3) of the Bankruptcy Code, which states that a lease may not be assumed or assigned if “such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief.” It noted that this provision was enacted as part of the 1984 amendments to the Bankruptcy Code, at the same time current §§ 362(b)(10) and 541(b)(2) were enacted. “The limiting words in the latter sections, at or by ‘the expiration of the stated term of the lease,’ narrow the type of lease termination that is covered, to something narrower than terminations covered by §365(c)(3), and must be given some meaning.
Matthew T. Gensburg
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