In re Bridge Associates of Soho, Inc.

Bridge Associates of Soho, Inc. (debtor) owned a building in New York City that was classified as an interim multiple dwelling under New York’s Multiple Dwelling Law, or Loft Law. Bridge’s building did not have a certificate of occupancy for residential use and Bridge was not in compliance with the statutory process needed to convert the building into multiple legal dwellings. Therefore, the Loft Law prohibited rent collection from the building’s occupants, also called statutory tenants. Bridge filed a voluntary chapter 11 petition in 2018. Bridge then filed a motion under 11 U.S.C. § 363 seeking to sell the building free and clear of liens, claims, and encumbrances, including any interests held by the building’s statutory tenants. The statutory tenants objected, asserting that the Loft Law gave them possessory rights in the building. Bridge argued that the sale was appropriate under § 363(f)(1) because nonbankruptcy law would permit the sale free of the statutory tenants’ interests and/or under § 363(f)(4) because there was a bona fide dispute about whether the statutory tenants had possessory rights under the Loft Law. Specifically, Bridge claimed that the statutory tenants had no possessory rights because they had not paid rent for years and were subject to eviction under New York law. Bridge also argued that the sale was appropriate under § 363(f)(5) because the statutory tenants could be compelled to accept money satisfactions of any property interests that they had in the building.