Delaware Court Rules Master Lease Cannot Be Severed

The federal bankruptcy court in Delaware has ruled that the individual leases incorporated into a master lease were economically interdependent, and therefore the debtor could not reject certain of the individual leases on their own, but had to accept or reject the master lease as a whole. In re Buffets Holdings, Inc., 2008 WL 2080555 (Bankr. D. Del. 2008)

The debtors were the country's largest restaurant company in the family-dining segment of the restaurant industry, and they filed for bankruptcy protection in January 2008. This decision involved the motion of the debtors to reject select restaurant leases that were part of a master lease.

Before the debtors filed for bankruptcy, however, they had attempted to restructure. As part of their restructuring, the debtors entered into a sale/ leaseback transaction in which they sold certain restaurants and the ground on which they stood, and then leased them back.