Circuit ‘Certifies’ Questions on Rent-Stabilized Lease Value in Bankruptcy

In legal terms, a certified question is a formal request by one court to one of its sister courts, usually but not always in another jurisdiction, for an opinion on a question of law. This happened in the appeal of a 78-year-old rent-stabilized tenant's bankruptcy case.

The tenant, unable to keep up with her bills after her husband’s death, filed for Chapter 7 bankruptcy two years ago. She has no assets and no income other than Social Security. Typically under such circumstances, following a bankruptcy filing, she wouldn’t have to pay the $23,000 she owed.

The tenant had been paying her rent—$703 per month for a two-bedroom apartment—and didn’t owe the landlord any money. But her landlord was notified of the bankruptcy as part of standard procedures. He offered to buy out her lease, giving her enough money to pay off her debt, and the bankruptcy trustee agreed to the offer.

A 78-year-old woman's attempt to stay in her rent-stabilized apartment may depend on whether New York's highest court finds that the value of her lease can be exempt from bankruptcy. The U.S. Court of Appeals for the Second Circuit certified questions to the New York Court of Appeals, asking New York State's highest court to determine whether the value of the tenant's lease constitutes a "local public assistance benefit" under New York Debtor and Creditor Law (DCL) §282(2).

Judge Barrington Parker, writing for the court, discussed the uncertainty of whether the value inherent in a lease can be considered a "local public assistance benefit" under the protections of New York's Rent Stabilization Code. The tenant, he said, argued that the "significant protections" afforded tenants under the rent stabilization law, "adds 'value' to a rent stabilized lease above the value of a market rate lease" and amount to a public assistance benefit.

Parker said the issue of whether the extra value is a public assistance benefit is "an additional and analytically different issue." The tenant claims that it is a benefit, but the bankruptcy trustee argues that the assumption and assignment of a lease eliminates the protections of the Rent Stabilization Code.

"No New York cases directly address these contentions," Parker said. "New York courts addressing the intersection of the Bankruptcy Code and the RSC have indicated that the rejection of a rent-stabilized lease by the trustee does not void or terminate the lease, and does not eliminate the protections of the RSC."

Nor have New York courts interpreted the phrase "local public assistance benefit" in the context of DCL §282(2), he said.

"Given the significance of these issues to landlords and tenants, as well as the complete absence of authority concerning the impact of DCL §282(2) on rent stabilized leases," he said, "we hesitate to attempt to resolve these issues without first obtaining the views of the New York Court of Appeals."