The termination of lease agreements on properties awarded by means of dation in payment during the liquidation phase of a bankruptcy proceeding is brought before the Supreme Court.
The dispute arose after the declaration of bankruptcy of a construction company, which was the owner of several apartments that it had leased, although the leases were not registered in the Land Registry. In the course of the bankruptcy liquidation, the apartments were awarded in lieu of payment to another company, which subsequently sold them to a third party who filed an eviction claim against the tenants. Although the claim was dismissed in the first and second instance on considering that article 14 of the Urban Leases Law (LAU, as amended by Law 4/2013, of June 4) was applicable to the case, by which the tenants would have a fair title to continue in possession of the property, the High Court upheld the appeal filed, upholding the claim and ordering the eviction of the defendants.
The Supreme Court delimited the disputed issue in determining whether the acquisition of the properties within the insolvency proceedings by means of dation in payment should be included in the cases contemplated in article 13.1 LAU, without this list being exhaustive in nature, or, on the contrary, the provisions of article 14 of the same law should be taken into account. The first, entitled “Termination of the lessor’s right”, establishes that the leases will be terminated if during their term a conventional withdrawal is exercised, a trustee substitution is opened, a forced disposal occurs as a result of a mortgage foreclosure or court judgment, or a purchase option right is exercised. For its part, article 14 LAU prescribes that the alienation of the leased dwelling does not give rise to the extinction of the leases .
In this regard, the Supreme Court, in its first ruling on this issue, indicates that when Article 13.1 LAU speaks of termination of the lessor’s right, it should be understood that it refers to “the disappearance from the assets of the lessor, by an act or legal transaction not dependent on his will, of the right that made the lease possible and its consequent entry into the legal assets of a third party”. Consequently, the lease will be terminated not only in the cases expressly provided for in said precept, but in all cases in which the lessor loses its right over the real estate by an act or legal transaction not dependent on its will.
Consequently, the High Court understands that the dation in payment now included in article 211 of the revised text of the Insolvency Law and, previously, in article 155.4 of the Insolvency Law, must be subsumed in article 13.1 LAU. And this is because this transfer must be assimilated to the forced disposal derived from a foreclosure, since it is a transfer of assets within the framework of a universal process, which the bankruptcy law considers as a form of realization, which is synonymous with the procedure of seizure, especially in the case of a transfer with judicial approval.
Following the doctrine set forth by the Supreme Court in this ruling, the question arises as to whether Article 13.1LAU can also be applied to other cases of realization of leased properties in the context of bankruptcy liquidation, such as, for example, direct sale or extrajudicial auction, in which the lessor’s right is also extinguished through no fault of his own. In such a case, it does not seem unreasonable to consider that unregistered leases are extinguished whenever the properties leave the estate of the insolvent debtor in this way.
Restructuring, Insolvency and Special Situations Area
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