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<b><i>In the Spotlight:</i></b> Does a Tenant's Right of Possession Trump a Sale Under Section 363?

By Bruce Buechler

The interplay between ” 363(f) and 365(h) of the Bankruptcy Code continues to plague various courts. This article explores several recent decisions evaluating whether a tenant's rights under ' 365(h) survive a sale of the debtor's assets free and clear of all liens, claims, and encumbrances pursuant to section 363(f). In many cases, the issue boils down to the language of ' 363(f), which permits a sale “free and clear of any interest in such property of an entity other than the estate ' .” Courts have grappled with the question of whether the phrase “any interest” in the context of a real property sale includes not only fee interests, security interests and other ownership interests, but also a tenant's possessory right under ' 365(h). Some courts have construed the broad language of “any interest” to encompass leasehold interests and thus have determined that ' 363(f) trumps ' 365(h), permitting debtors and trustees to sell real property free and clear of leasehold interests. Other courts have reached different conclusions.

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