Document Type


Publication Date

Fall 1993


This article is intended to continue the dialogue begun by the proposed Restatement and has two distinct goals in this effort. Parts I through III argue that the position of the Restatement drafters is both legally and functionally sound and that bankruptcy courts should embrace and apply the proposed Restatement in administering distressed real estate developments. Part I reviews the reasoning articulated in the hotel bankruptcy cases, demonstrating how courts have applied the provisions of the Bankruptcy Code and state law in a formalistic manner to extinguish the hotel mortgagee's lien upon postpetition room revenues. Part II rejects the analysis of the hotel bankruptcy cases on legal grounds. Although the drafters of the proposed Restatement appear to base their recommendations purely upon the functional similarity of rents and hotel room revenues, bankruptcy courts properly may characterize hotel room revenues as “rent” in the nature of real property. The notion that a licensee may pay “rent” in exchange for its constituent rights respecting the land is consistent with the original common law scope of the term “rent,” as well as the nature and scope of the term within the civil law tradition. Part III then criticizes the hotel bankruptcy cases on policy grounds, demonstrating that financial and economic realities do not justify distinguishing between real estate projects based solely upon the status of the occupier as a tenant rather than a licensee. To the developer and the mortgagee, the occupancy revenues generated by the apartment and the hotel are economically identical. Accordingly, sound commercial policy dictates that security law should treat hotel mortgagees with liens upon hotel room revenues no differently than apartment mortgagees holding liens upon rents.



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