Unbundling a Bundle of Sticks: Real Covenants

Finance and restructuring partner Richard Bernard and associate Roya Imani coauthored an article for the American Bankruptcy Institute Journal that addresses “real covenants,” whether affirmative or negative, that run with the land, are considered part of the real property and may restrict the use of the property or require the owner to perform some act.

The authors analyze what constitutes a real covenant and outline tools available under the Bankruptcy Code and state law that may enable a debtor to free its real property asset of real covenants that diminish the value. They further address stripping real covenants under §§ 365(a) and 363(f), including rejection under § 365(a), as well as sale free and clear under § 363(f).

In conclusion, the authors stated that as courts address these issues, the jurisprudence, albeit potentially state-specific, will continue to develop.