Second Circuit: Bankruptcy Code's Lease Assumption And Assignment Provisions Apply Only To "True Leases"

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). The U.S. Court of Appeals for the Second Circuit examined this issue in MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holdings Corp.), 2024 WL 5113165 (2d Cir. Dec. 16, 2024). The court of appeals affirmed a district court ruling that the Bankruptcy Code's deadline for assuming or rejecting a nonresidential real property lease did not apply to a shopping center "lease" because the