The proposed asset sale at the heart of the pending Revel AC chapter 11 cases has raised an interesting question about the extent to which sales can be approved under Bankruptcy Code section 363(f) free and clear of tenant interest in real property. As discussed in further detail below, Bankruptcy Code section 365(h) generally allows a tenant under a real property lease rejected by a debtor to remain in possession of the leased property for the duration of the lease term.
In Revel, the U.S. Bankruptcy Court for the District of New Jersey entered an order in early January approving the sale of substantially all of the company’s assets to Polo North Country Club, Inc. free and clear of any rights of tenants under section 365(h).1 However, this section of the sale order was recently stayed by the U.S. Court of Appeals for the Third Circuit, which should issue a decision this spring clarifying its understanding of the relationship between Bankruptcy Code sections 363(f) and 365(h).2
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