Owner's 'Purchase Option' Unenforceable in Bankruptcy Court

April 30, 2003

A national retailer filed for bankruptcy and asked the owner for permission to assign its lease. The owner refused and notified the tenant that it was exercising its “purchase option” under the lease, which allowed it to take back the space. The bankruptcy court approved the assignment despite the owner's objections and refused to let the owner exercise its purchase option. The owner appealed.

A national retailer filed for bankruptcy and asked the owner for permission to assign its lease. The owner refused and notified the tenant that it was exercising its “purchase option” under the lease, which allowed it to take back the space. The bankruptcy court approved the assignment despite the owner's objections and refused to let the owner exercise its purchase option. The owner appealed.

A federal appeals court in Tennessee ruled that the owner's purchase option was unenforceable in bankruptcy court. The court said that the purchase option was “an explicit, intentional restriction on assignment” in violation of bankruptcy law, which favors assignments [Ramco-Gershenson Properties, LP v. Service Merchandise Co.].

More like this