Where an order of sale approved a purchase agreement for debtors to sell certain property, and the agreement provided that the lease for the property would be transferred to the buyer pursuant to assumption and assignment and the debtors would remain responsible for future rent if the sale was not completed, the sale order functioned as an assumption of the lease for the property.
The debtors filed their petitions for relief under Chapter 11 of the Bankruptcy Code on March 20, 2018. They were given deadline of Oct. 16, 2018, to assume nonresidential real property leases.
On July 25, 2018, the court entered an order that approved procedures to reject or assume executory contracts and unexpired leases. These procedures authorize the debtors to obtain approval of the assumption of a nonresidential real property lease by filing either a notice of assumption or motion seeking approval of the proposed assumption.
The debtors and SAICO Gateway Co. LLC were parties to a lease for certain real property located in La Mesa, California. Because the debtors have not filed a notice of assumption for the La Mesa lease, they can only assume the lease via motion.
In August 2018, SAICO and the debtors negotiated a purchase agreement whereby an entity created by SAICO would purchase the La Mesa Lease for a price of $11 million. Further, the agreement provided that the La Mesa lease will be transferred pursuant to assumption and assignment and that, if the sale is not completed, the debtors will be responsible for future rent.
On Aug. 30, 2018, the debtors moved for approval of the purchase agreement. On Sept. 13, 2018, the court entered an order authorizing the sale of the La Mesa lease, free and clear of all liens, encumbrances, and other interests to Wing Avenue Investment, LLC, the entity created by SAICO for that purpose. The sale order specifically states that the requirements of Bankruptcy Code §§ 363 and 365 have been met and that the debtors have met all requirements of §§ 365(b) and 365(f) in connection with the sale.
The buyer failed to close the sale by the Nov. 30, 2018, closing date and forfeited the deposit it had made to the debtors. On Nov. 29, 2018, the debtors, out of an abundance of caution, filed this motion, seeking confirmation that the lease was assumed pursuant to the court’s earlier order authorizing its sale or, alternatively, that the landlord consented to an extension of the Bankruptcy Code’s time limitations within which to assume it.
The court finds that the Sept. 13, 2018, sale order, when considered in light of the surrounding circumstances, necessarily functioned as an assumption of the La Mesa lease. SAICO’s reliance on language in the sale motion that nothing in the motion should be interpreted as a request or authorization to assume, adopt, or reject any agreement, contract, or lease pursuant to section 365 of the Bankruptcy Code is misplaced as the sale order itself provides that, to the extent there are any inconsistencies, the terms of the order shall govern. Notably, SAICO did not object to the sale motion or appeal the entry of the sale order.
There are also multiple references to assignment and assumption in the purchase agreement and the sale order approves the purchase agreement and gives the debtors the ability to take any and all actions necessary or appropriate to consummate the purchase agreement. The purchase agreement plainly reflects that the parties structured the transaction to include both the assumption and assignment of the lease and the sale of a building and other improvement to the subject real estate.
Although it was not specifically titled “sale and assumption,” it is inconceivable that the parties to this highly negotiated and sophisticated transaction did not, in seeking permission to enter into the purchase agreement, also seek the court’s approval of the assumption and assignment of the lease.
Because the court finds that the sale order approved the assumption and assignment of the lease, it is unnecessary for the court to address the debtors’ request that SAICO be estopped from arguing that the lease has been rejected. Nor does the court need to address the larger legal issue of whether an order allowing the sale of an estate asset necessarily approves the assumption and assignment of that asset. For the same reason, the issue of whether SAICO tacitly consented to an extension of the time within which to assume or reject the lease is moot.
Finally, the court is not persuaded by the notice arguments set forth by SAICO. The evidence is clear that SAICO was a participant in every aspect of the transactions at issue herein. The court has not been presented with any evidence to suggest that SAICO was unaware of the details of this transaction and rejects the suggestion that SAICO did not have proper notice through the entity it created.
While this motion for approval is therefore unnecessary, it will be granted to provide clarity.
In re Toys ‘R’ Us Property Co. I LLC, Case No. 18-31429, June 19, 2019. EDVA U.S. Bankruptcy Court at Richmond (Phillips). VLW 019-4-020. 16 pp.