Leasehold Recharacterization in Bankruptcy: A Review and Critique

Abstract:     
The recharacterization of leasehold interests as mortgages has several hundred years of history and doctrinal development that focuses on the intent of the parties. Bankruptcy cases, however, have recently abandoned this body of law, replacing it sub silentio with a federal economic substance test derived from an amalgam of tax and personalty recharacterization cases. This test is not only inconsistent with established state property law but, worse, is inherently arbitrary, unpredictable, and inconsistent. I advocate a return to a test based primarily on the expressed intent of the parties in order to respect the federalist structure of our property law and bankruptcy system, reduce forum shopping, and provide predictability for contracting parties as well as for third parties who rely on the recorded state of title.

Number of Pages in PDF File: 50

Keywords: Bankruptcy, Leases, Leasing, Sale-Leaseback, Recharacterization

JEL Classification: G33, L14, K11, K12

working papers series