ELR Citation: ELR 21351
No(s). 89-5618 (3d Cir. Jan 12, 1990)

The court holds that the bankruptcy court erred when it allowed a bankrupt company to withhold rent payments on a lease for an industrial complex entered into after the owner was prevented from selling the property for failing to comply with the New Jersey Environmental Cleanup Responsibility Act (ECRA). The property owner agreed to sell the industrial complex to the debtor. Prior to closing, however, it was discovered that the property was contaminated with a hazardous chemical. ECRA requires that contaminated industrial property in New Jersey be cleaned up before title may pass. The parties then entered into a lease agreement allowing the prospective buyer to take immediate possesion of the property. The lessee filed for bankruptcy two years later. The bankruptcy court held that the lessee's rent payments were not "necessary costs" of preserving the estate under Bankruptcy Code §503, since the lessor had failed to act in good faith to comply with ECRA's cleanup standards. The court notes that the bankruptcy court ignored the fact that the lease was voluntary, and thus the lessor's liability under the contract of sale is separable from its claim for relief under the lease. The bankruptcy court's ruling also provides a form of relief to the lessor, possession free of charge, that has no authority in contract law. Further, the inequities created by the bankruptcy court's remedy far outweigh the property owner's alleged bad faith.

Counsel for Appellant
Allan M. Harris
Ravin, Greenberg & Zackin
101 Eisenhower Pkwy., Roseland NJ 07068
(201) 226-1500

Counsel for Appellees
Kathryn Ferguson, Michael A. Zindler
Markowitz & Zindler
3131 Princeton Pike, Lawrenceville NJ 08648
(609) 896-2414

Before GIBBONS, Chief Judge, SCIRICA, Circuit Judge, and WALDMAN, District Judge^*.