Many private golf courses are burdened with restrictive covenants, which imposes a limitation on how land can be used. These covenants often limit what golf course owners can accomplish in Chapter 11—which may come as an unwanted surprise when initiating financial restructuring. In his Commercial Leasing and Law Strategy article, “The Bankruptcy Code’s Inherent Limitations for Struggling Golf Courses,” member Daniel A. Lev explains the limited pathways that owners have, and why these options are often rejected by courts.
According to Mr. Lev, the existing bankruptcy code makes it difficult to sever restrictive covenants from real property. “A debtor’s first effort might be to seek the rejection of the restrictive covenant as an executory contract under section 365(a). However, courts are virtually unanimous in rejecting this approach to shred a covenant from golf course property,” wrote Mr. Lev. “The next possible path for a debtor is to seek to use section 363(f) to sell the real property free and clear of the covenant, but the majority of courts have refused to allow a debtor to use this provision to strip covenants and other rights that run with the land.”
According to Mr. Lev, the solution to this problem lies in the state court doctrine of “changed circumstances,” which he will discuss in the next installment of this two-part series.
Read the full article here.