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Bankruptcy Court Rules That Automatic Stay Does Not Apply To Month to Month Tenancies   

In an October 2018 ruling a bankruptcy court in Puerto Rico considered whether a landlord violated the Automatic Stay by proceeding with an eviction proceeding on a month-to-month lease the day after a bankruptcy case was filed. In Re Marrero 2018 WL 5281626 (Bankr. Puerto Rico, 10/22/2018). The court concluded that under the Civil Code of Puerto Rico a month-to-month lease ceases every month, without requiring any notice or special request. Because the lease terminated pre-bankruptcy the Court concluded that it had “terminated by the expiration of the stated term of the lease.” Under 11 U.S.C.. 362(b)(10) the Automatic Stay does not apply to eviction actions where leases have expired by their own terms. The court also concluded that the lease was not property of the bankruptcy estate.

It is critical to note that courts in other jurisdictions have come to the exact opposite conclusion. Specifically in In Re Van Vleet 383 BR 782 (Bankr. Col. 2008), a 3-year lease automatically became a month-to-month tenancy at the end of the lease, per the terms of the lease. The landlord continued to accept payment after the three year term, and the lease provided that the month to month tenancy could be terminated by either party upon 30 days’ written notice.

After the lease in Van Vleet converted to a month-to-month tenancy the lessee filed for bankruptcy. Several months after the commencement of the bankruptcy case the lessor made a demand for payment under 11 U.S.C. .365(d)(3), which requires timely performance under an unexpired lease. This time it was the tenant (more accurately, the bankruptcy trustee who succeeded to the tenant’s rights) who took the position that because it was merely a month-to-month tenancy the lease was not property of the bankruptcy estate and/or had terminated pre-petition.

The Van Vleet court ruled in favor of the Landlord, distinguishing two earlier cases where month-to-month tenancies had been terminated pre-bankruptcy by state court orders. Critical to the Van Vleet court’s ruling was the fact that the lease itself provided that the month-to-month tenancy could be terminated by either party upon 30 days’ written notice. In the Van Vleet case that notice had never been given.

In language that squarely contradicts that of the Marrero decision, the court in Van Vleet specifically ruled that month to month tenancies do not expire every month.

Ultimately these two cases can be reconciled simply because they relied upon differing state laws to determine their outcomes. Since Butner v. United States, 440 U.S. 48 (1979) determining what is property of the estate is a determination that in fact should be made by reference to state law. What the landlord did in the Marrero case was aggressive, and in many states would have resulted in the imposition of significant damages upon the landlord. It is only because of the peculiarities of Puerto Rico’s Civil Code that it did not.

Lawyer Mark Sharf | United States | Bankruptcy Litigation for Landlords

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