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Bankruptcy Court Opens Door for Tenants to Assume Leases After a Pre-Bankruptcy Eviction Warrant
A recent decision in the Chapter 11 case of Payam, 642 B.R. 365 (Bankr. S.D.N.Y. Aug. 10, 2022) by Chief Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York highlights the significant impact that a 2019 amendment to the New York Real Property and Procedures Law (RPAPL) will have on future disputes in bankruptcy cases where the tenant files for bankruptcy after the issuance of a warrant of eviction but before its execution. With the deletion of just a few words from RPAPL §749(3), the 2019 amendment opens the door for tenant-debtors to assume leases even after a pre-bankruptcy warrant of eviction has been issued, without the need for the tenant to first vacate the warrant of eviction.
|The 2019 Amendment
Before the amendment, RPAPL §749(3) provided that "[t]he issuing of a warrant for the removal of a tenant cancels the agreement under which the person removed held the premises, and annuls the relation of landlord and tenant, but nothing contained herein shall deprive the court of the power to vacate such warrant for good cause shown prior to the execution thereof." RPAPL §749(3) (2018) (emphasis added). Under the prior version of the statute, the issuance of a warrant of eviction terminated the landlord-tenant relationship. This legal proposition was uniformly recognized by both New York state and bankruptcy courts. See, e.g., In re Éclair Bakery Ltd., 255 B.R. 121, 136 (Bankr. S.D.N.Y. 2000); In re Touloumis, 170 B.R. 825, 829 (Bankr. S.D.N.Y. 1994); Lazy Acres Park v. Ferretti, 118 A.D.3d 1406, 1407 (4th Dep't 2014); Fisk Bldg. Assocs. v. Shimazaki II, 76 A.D.3d 468, 469 (1st Dep't 2010); Stepping Stones Assocs. v. Seymour, 48 A.D.3d 581, 584 (2d Dep't 2008); see also In re Super Nova 330 v. Gazes, 693 F.3d 138, 142 (2d Cir. 2012) ("Under New York law, … while the issuance of a warrant of eviction cancels any existing lease and seemingly terminates the landlord-tenant relationship, the tenant, in fact, retains a residual interest in the lease until the execution of the warrant."). In the bankruptcy context, the termination of the leasehold interest under RPAPL §749(3) meant that there was no lease for the tenant to assume. See In re Éclair Bakery Ltd., 255 B.R. at 136 (noting that, where issuance of warrant of eviction terminates lease, "the filing of a bankruptcy case does not revive the lease"); In re W.A.S. Food Serv., 49 B.R. 969, 972 (Bankr. S.D.N.Y. 1985) (where a warrant of eviction has been issued "the mere potentiality of a restoration of the landlord tenant relationship through vacatur of the warrant of eviction does not vest the debtor with a sufficient interest in the leased property to allow assumption and assignment of the lease") (citations omitted). The debtor would need to vacate the warrant in order to resurrect the lease.
Although a terminated lease may not be assumed in bankruptcy, the tenant-debtor's possessory interest in the leasehold is protected by the automatic stay that is triggered by the commencement of a bankruptcy case pursuant to §362 of the Bankruptcy Code. See In re Sweet N Sour 7th Ave., 431 B.R. 63, 67 (Bankr. S.D.N.Y. 2010) ("[I]f a debtor remains in possession after the issuance of a warrant, the debtor retains an equitable possessory interest in the leasehold sufficient to trigger the protection of the bankruptcy automatic stay."); In re Éclair Bakery Ltd., 255 B.R. at 133 (automatic stay applies to lease where state court enters a warrant of eviction, and stays its application). A landlord seeking to complete the eviction of the tenant-debtor is therefore required to first seek relief in the bankruptcy court to vacate the automatic stay in order to proceed. In pre-2019 RPAPL amendment bankruptcy cases addressing lift stay motions filed by landlords seeking to proceed with tenant evictions where a warrant of eviction had issued, bankruptcy courts have looked to whether there is a reasonable possibility that the state court would vacate the warrant of eviction. See, e.g., In re Griggsby, 404 B.R. 83, 93 (Bankr. S.D.N.Y. 2009) (noting that "[t]he prepetition issuance of a warrant may provide 'cause' to terminate the automatic stay pursuant to §362(d)(1)," and finding cause to vacate the stay because debtor "failed to show grounds upon which the Civil Court would vacate the warrant of eviction"); In re Syndicom, 268 B.R. 26, 46 (Bankr. S.D.N.Y. 2001) (granting landlord relief from stay because there was no pending state court proceeding to vacate the warrant of eviction, and debtor did not show reasonable possibility that the state courts would vacate the warrant of eviction based on prior state court decision denying even a stay of eviction); In re Éclair Bakery Ltd., 255 B.R. at 136 (granting landlord stay relief to remove debtor from possession of premises and noting that "where state court litigation is not pending or in the cards, or where the debtor has failed to show any basis for a belief that the state court will grant relief, the prepetition termination of the landlord-tenant relationship will at least normally provide cause for relief from the stay").
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