593 B.R. 381
Bankr. D. Mass.2018Background
- Landlord RREF II Kenmore Lessor II, LLC (Related Beal affiliate) owns 642–648 Beacon St. (six floors). Debtor Boston Language Institute occupies the entire third floor under a lease expiring Dec. 31, 2020.
- Lease First Amendment (2007) allows landlord to terminate the lease if it determines to "demolish or substantially rehabilitate" two or more floors, with 12 months' written notice. RREF served a June 28, 2017 termination notice effective June 30, 2018.
- After purchasing a nine‑building portfolio from Boston University, Related Beal/RREF prepared redevelopment materials (January 2018 BRA Letter of Intent describing some "modest modifications") and later architectural and environmental reports (PCA construction documents, Roux hazardous‑materials surveys) showing planned lobby reconfiguration, a gut of the third‑floor tenant space, and asbestos/lead/PCB remediation.
- Debtor filed chapter 11 on June 29, 2018 and continued to pay postpetition rent; it opposed RREF’s motion for relief from the automatic stay to proceed with eviction and asserted RREF’s termination notice was a pretext.
- At evidentiary hearing, court found credible steps taken by RREF toward rehabilitation but concluded the decision to gut the Debtor’s third floor was a more recent position and that the balance of harms and adequate protection favored the Debtor at this early stage.
Issues
| Issue | RREF's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Whether RREF showed "cause" under 11 U.S.C. § 362(d)(1) to lift stay to pursue eviction | RREF: has taken concrete steps (architectural plans, environmental surveys, contractor engagements) showing substantial rehabilitation of first and third floors; hazardous‑material remediation requires vacancy | Debtor: RREF made inconsistent representations ("modest modifications" to BRA; PCA noted no tenant space alterations); termination was pretext to replace below‑market lease | Denied without prejudice: court found RREF has probability of prevailing but balance of hardships favors Debtor now; Debtor's postpetition rent provides adequate protection |
| Whether RREF validly exercised contractual termination right by determining to "substantially rehabilitate" two or more floors | RREF: planned work (budgeted multimillion dollars; ground‑floor and third‑floor gut; building‑wide MEP/finish work and hazardous remediation) meets ordinary meaning of substantial rehabilitation | Debtor: contemporaneous project descriptions described "modest" changes and no tenant alterations; RREF’s later shift suggests post‑petition pretext | Court: Found substantial rehabilitation was not contemplated pre‑petition as to the third floor; RREF’s later position viewed as recent contrivance; termination not proven at this time |
| Whether landlord is entitled to relief under § 362(d)(2) (no equity + not necessary to reorganization) | RREF: lease has little or no value to debtor; termination and lease expiration undermine debtor’s claim of equity/necessity | Debtor: lease is necessary to an effective reorganization; has plausible reorganization prospects and alternatives | Denied: Debtor showed a plausible path to reorganization within a reasonable time; § 362(d)(2) relief not warranted now |
| Adequate protection / effect of postpetition rent payments | RREF: risk of delay/harm; wants repossession to proceed for remediation and redevelopment | Debtor: continued payment of postpetition rent and steps toward reorganization protect landlord’s interest | Court: Ongoing rent payments constitute adequate protection at present; stay denial without prejudice contingent on debtor filing plan/disclosure by Feb 15, 2019 |
Key Cases Cited
- Grella v. Salem Five Cent Savs. Bank, 42 F.3d 26 (1st Cir.) (stay‑relief hearing is a summary proceeding to determine whether movant has a colorable claim)
- United Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (U.S. 1988) (debtor must show property is necessary to an effective reorganization; requires reasonable possibility of successful reorganization in reasonable time)
- Barclays Bank PLC v. Poynter, 710 F.3d 16 (1st Cir.) (contract interpretation: ambiguity is not created merely by disagreement over meaning)
- Sonnax Indus., Inc. v. Tri Component Prods. Corp., 907 F.2d 1280 (2d Cir.) (multi‑factor test often used in stay‑relief analyses)
- In re BB Island Capital, LLC, 540 B.R. 16 (Bankr. D. Mass.) (discussing burdens for § 362(d)(2) and shifting standards as case progresses)