b. (§14.24) Debtor as Lessor
The Bankruptcy Code also contains protection for a nondebtor tenant of an unexpired lease of real property—whether commercial or residential—under which the debtor is the lessor. 11 U.S.C. § 365(h). If the trustee rejects an unexpired lease of real property, the tenant is given the option either to:
· treat the lease as terminated by the rejection; or
· remain in possession of any renewal or extension of such term that is enforceable under applicable non-bankruptcy law.
Section 365(h)(1). As a balance to allowing continued possession by the tenant, the tenant’s remedy for damages caused by the landlord’s failure to provide certain services or supplies is limited to an offset against the rent due under the lease. Section 365(h)(1)(B); see also In re Upland/Euclid, Ltd., 56 B.R. 250 (B.A.P. 9th Cir. 1985) (a debtor/lessor cannot raise rent after rejection when the tenant elects to stay in possession).
Many cases decided under § 365(h)(1) have determined the scope of the rights of lessees when a debtor/lessor rejects a lease. See:
· In re TM Carlton House Partners, 97 B.R. 819 (Bankr. E.D. Pa. 1989) (a tenant is entitled to remain in possession under the same rental terms that existed under the lease)
· In re Carlton Rest., Inc., 151 B.R. 353 (Bankr. E.D. Pa. 1993) (a lessee with the right of possession under § 365(h) has no right to assign its leasehold...
