The Real Deal New York

Rent-stabilized leases: Fair game in bankruptcy?

October 21, 2013 05:31PM

Rent-stabilized leases have been dubbed assets in some bankruptcy proceedings in recent years. Now, for the first time, a federal appeals court is weighing in.

Mary Veronica Santiago, an East Village resident who has lived in a rent-stabilized two-bedroom off Tompkins Square park for 50 years, filed for bankruptcy two years ago. Her case, now closely watched by lawyers and industry insiders, hangs on whether her lease can be seized as an asset to pay off creditors.

The issue at hand is whether a rent-stabilized lease can be treated just like a car or piece of land in bankruptcy proceedings.

Should that be the case, bankruptcy lawyers say, evicting rent-stabilized tenants could become easier for landlords, even if they are not among that person’s creditors.

“This is not what bankruptcy is about,” Kathleen Cully, one of Santiago’s pro bono lawyers, told the New York Times. “What’s next? Are they going to start going after food stamps?”

Some bankruptcy lawyers even told the Times they advise clients with rent-stabilized leases against filing for Chapter 7 bankruptcy because of the risk to their living accomodation.

And yet the trustee in Santiago’s case, John Pereira, said he is obliged to pool all possible assets to see that her debts are paid. Bankruptcy, he said, is a painful process.

“If you file for bankruptcy, there are consequences,” Pereira told the Times. [NYT]Julie Strickland

  • DanM

    Great lawyering, but poor law. Trustees can “assume” a lease and sell it if it has value, as may be done in this case, but generally “reject” a lease so that the tenant can move and avoid paying rent for the balance of the term. Nothing new there. The only wrinkle is that in New York, rent regulations complicate the facts. The Times explained that the landlord was willing to let the tenant stay as long as her son was denied succession rights. Whether the Rent Stabilization Law would permit this regardless of a federal court order in bankruptcy is a separate question that would be decided in State courts. Meanwhile, the attorneys for the tenant have done a great job of blowing this way out of proportion to influence the federal judges.