Authors

Aaron Leaf

Document Type

Research Memorandum

Publication Date

2016

Abstract

(Excerpt)

Section 363(f) of title 11 of the United States Code (the “Bankruptcy Code”) allows a trustee to sell property “free and clear of any interest in such property” that a third party might have if certain conditions are met. Section 365(h) of the Bankruptcy Code allows the lessee of a rejected lease to either retain the property with all rights appurtenant to the estate, or treat such lease as terminated and sue for damages. Courts are split on if these sections of the Bankruptcy Code are compatible. The majority of courts have found these sections are not compatible, and a trustees ability to sell property “free and clear” of third party interests is subject to the rights of the non-debtor lessee to stay. A minority of courts have found these sections are compatible, and have held that a trustee can sell property free and clear of a leasehold interest.

This article explores these conflicting opinions. Part I discusses the seminal case deciding a trustee’s ability to sell property “free and clear” of third party interests is subject to the rights of the non-debtor lessee to stay. Part II discusses the decisive cases deciding Section 363(f) rights to sell property “free and clear” of third party interests supersedes a lessee Section 365(h) rights to stay.

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