Liona Corp. v. PCH Associates
United States Court of Appeals for the Second Circuit
804 F.2d 193 (1986)
PCH Associates (PCH) (defendant) sought out buyers for a hotel it owned. An experienced real estate investor helped the hotel find the investors needed to purchase and operate the hotel. Liona Corporation, N.V. (plaintiff) purchased the land for an amount calculated as necessary to finance the transaction, held title to the land, and leased it back to PCH using a sale-leaseback agreement and a ground lease. The agreement provided that the lease would expire in 165 years, PCH would pay $600,000 annually in rent, and additional payments would be depend on the hotel’s gross revenues. The lease was structured by the sophisticated parties so that Liona would not be involved in the daily management of the hotel. In return, PCH paid the property taxes and insurance costs so it could accrue the tax benefits of the lease transaction. PCH eventually filed for bankruptcy. Liona filed an application with the bankruptcy court to require PCH to affirm the lease and make rental payments or disaffirm the lease and leave the property. In response, PCH declared that the transaction was not a lease and therefore not subject to the Bankruptcy Code. The bankruptcy court concluded that the transaction was a joint venture, not a lease. The district court affirmed. Liona appealed.
Rule of Law
Holding and Reasoning (Miner, J.)
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