Second Circuit: Bankruptcy Code's Lease Assumption and Assignment Provisions Apply Only to True Leases

Summary

This article discusses a recent Second Circuit decision on whether a lease transaction was a financing arrangement. The ability of a bankruptcy trustee or Chapter 11 debtor-in-possession (DIP) to assume and assign executory contracts and unexpired leases is an invaluable tool for generating value for a bankruptcy estate to pay creditor claims and provide funding for a Chapter 11 plan. However, the provisions of the Bankruptcy Code governing assumption and assignment of unexpired leases apply only to true or bona fide leases, as distinguished from many financing arrangements commonly utilized in real estate transactions. See In re PCH Associates, 804 F.2d 193, 198 (2d Cir. 1986).