Congratulations to Shareholder, Richard B. Webber II, and Senior Associate, Bradley J. Anderson, on their recent Bankruptcy Trial victory on the Chapter 7 Trustee’s Motion to Reject Residential Lease in the case of In re Migell, pending in the Bankruptcy Court for the Middle District of Florida, Orlando Division.   Mr. Webber is a Chapter 7 Bankruptcy Trustee, and Mr. Anderson represents Mr. Webber in litigation matters in Federal Bankruptcy Court. 

Case Background

The Bankruptcy Court appointed Mr. Webber as Chapter 7 Trustee for the Bankruptcy Estate of Debtor, Andrew B. Migell. The Debtor, along with his non-filing spouse, Kai Sun, owned non-exempt residential property in Daytona Beach, Florida.  The Debtor and Ms. Sun were subject to a contempt order entered by the Commonwealth of Massachusetts, Probate and Family Court Department for their failure to comply with court orders.  To purge their contempt, Mr. Migell and Ms. Sun agreed to liquidate the Daytona Beach property, and the Massachusetts Court appointed Mr. Webber as Receiver to liquidate the property. 

Mr. Webber discovered that a tenant resided in the property and sent notice to the tenant that all rent was to be paid to the Trustee, as Receiver, until further notice, as authorized by the Massachusetts Court.   Through discovery, Mr. Webber and Mr. Anderson learned that that the tenant occupied the property on a month-to-month basis since 2013.  However, after Mr. Webber was appointed Receiver and the filing of the Chapter 7 Bankruptcy case, Mr. Migell and Ms. Sun signed a new lease with the tenant extending his tenancy for two additional years.  The tenant refused to deliver the rent to the Trustee/Receiver over the next four months, and Mr. Webber asked the Bankruptcy Court to reject the tenant’s lease so that the Trustee could evict the tenant and sell the property free and clear of the lease.  The issues for Trial were (1) whether the tenant held a valid lease and (2) how long, if at all, tenant was entitled to remain in the property.

Interests of a Tenant in Bankruptcy

Section 365(a) of the Bankruptcy Code provides that a lease is automatically rejected if not otherwise assumed within 60 days of the filing of the case or conversion to Chapter 7.  In this case, the Bankruptcy Court found that Mr. Webber did not assume the lease within 60 days, so the tenant’s lease was deemed rejected as a matter of law.  Even though the lease was deemed rejected, the tenant asserted his right to occupy the property for the remainder of his lease term.  Section 365(h) of the Bankruptcy Code provides that even where a lease has been rejected, a tenant may continue to lease property for the balance of the lease term and for any renewal or extension provided in the lease so long as the tenant complies with the terms of the lease. 

The Bankruptcy Judge ruled in the Trustee’s favor on all issues, finding that the new lease was void because neither Mr. Migell nor Ms. Sun had authority to sign the lease, as only the Trustee/Receiver could grant leasehold rights to the property.  The Bankruptcy Judge found that the tenant continued to occupy the property on a month to month tenancy, which was terminated as a matter of law when the Trustee did not assume the lease within 60 days.  The Bankruptcy Judge also noted that even if the additional two year lease was valid, the tenant defaulted on the lease by failing to pay rent to the Trustee/Receiver, which was another basis for rejecting and terminating the lease.

ZKS represents landlords and tenants whose rights are impacted by bankruptcy filings.  We encourage you to contact Mr. Webber or Mr. Anderson with any questions on the enforcement of your rights in bankruptcy cases.