In re Key Largo Watersports, Inc., Case No. 07-12820 (Bankr.S.D.Fla. August 10, 2007)(Mark, J.) dealt with whether a nonresidential lease was an “unexpired lease” and therefore assumable by the Chapter 11 Debtor. Section 365(a) provides that a Chapter 11 debtor may, subject to the court’s approval, assume an unexpired lease. Section 365(c)(3) provides that a nonresidential lease may not be assumed if it was “terminated” prepetition.
The landlord sought relief from the automatic stay in order to complete eviction proceedings against the Debtor. The landlord argued that the Debtor was unable to assume the lease as it was “terminated” prior to the filing of the case and was no longer an “unexpired lease.” The landlord pointed to a prepetition letter of termination and eviction order. The Debtor argued that the lease had not been terminated and that it could therefore be assumed under section 365.
The court concluded that a prepetition final order or judgment of eviction extinguishes a Debtor’s property interest and right of possession whether or not the lease had been “terminated” prepetition. As the right of possession is extinguished, a lease is no longer an “unexpired lease” which may be assumed under Section 365. Although Section 365 can be used to cure defaults, it cannot revive an expired lease.
The court further noted that absent a prepetition eviction judgment, the issue is whether the lease was “terminated” prepetition as a nonresidential leases that has been terminated pursuant to state law cannot be assumed. Section 365(c)(3). In re Foxfire Inn of Stuart Florida, Inc., 30 B.R. 30, 31 (Bankr.S.D.Fla. 1983)(Britton, J.). The court noted that absent the eviction order in this case, the court would have had to analyze the lease and the actions taken pursuant it, including the purported termination letter, to determine whether the lease was “terminated” prepetition.
The court noted it prior decision in In re CHS Electronics, Inc., 265 B.R. 339, 342 (Bankr.S.D.Fla. 2001) in which it held that a lease remains “unexpired” if a debtor voluntarily surrenders possession prepetition to a landlord who expressly reserved all rights. The court noted that to the extent its CHS Electronics, Inc. decision was inconsistent with its decision in this case, it would stand by its decision herein.
