Cahaba Forests, LLC v. Hay
In Cahaba Forests, LLC v. Hay, 2012 WL 380126 ([MD Ala 2012]), a subtenant (Cahaba Forests, LLC) filed a declaratory judgment action against the landlord (collectively the Twilleys) for the court to decide the issue of whether the rejection of the lease and sublease by the debtor tenant (Bowater Alabama LLC) operated to terminate Cahaba's possessory rights in the property.
Cahaba contended that its right to possess the property under the sublease continued to the end of the lease period despite the bankruptcy of Bowater and the rejection of the lease and sublease by Bowater. By contrast, the Twilleys argued that they had the right to possession based on Section 365(d)(4) of the Bankruptcy Code from the date the lease had been deemed rejected.
In Cahaba, the court agreed that the rejection did not serve as a termination of the lease and it only meant that a breach had occurred holding:
So, what we have here is a case where the debtor/lesssee (Bowater) was required by bankruptcy law to immediately surrender possession of the subject property to its lessor (the Twilleys) upon its deemed rejection of a lease, which at that time was a breached lease, under which Cahaba was a sublessee, and with the rights of the sublessee as against the original lessors to be determined according to Alabama law.
The court explained that under Alabama law, "a sublessee's right to possession of the property is subject to the terms and conditions of the master lease ... Therefore, the validity of Cahaba's Sublease will turn directly on the continuing validity of the Bowater's breached-but-not terminated Master Lease in light of Bowater's breach and surrender under bankruptcy law.
Accordingly, the Court will look to the provisions of the Master Lease which give rise to termination and the enforceability of those provisions under Alabama law".