## Facts

- Jamesway Corporation, a Chapter 11 debtor-in-possession, operated discount department stores under multiple shopping-center leases.
- Three shopping-center landlords—Massachusetts Mutual Life Insurance Company (Newberry Commons), Monticello Mall, and Tri-State Mall—leased premises to Jamesway.
- Each lease permitted assignment but required Jamesway, upon assignment, to pay the landlord a stated percentage of the “profit,” “net consideration,” or similar assignment-related consideration.
- The bankruptcy court authorized Jamesway to assume and assign the three nonresidential real property leases to third-party retailers.
- In the assignment orders, the court reserved jurisdiction to resolve disputes over the profit-sharing clauses and directed the disputed portion of proceeds to be held in escrow.
- Jamesway sought a ruling that the profit-sharing clauses were unenforceable under 11 U.S.C. § 365(f)(1); the landlords sought enforcement and release of escrowed funds.

## Issues

1. Whether lease provisions requiring the debtor to remit a portion of assignment consideration to the landlord are unenforceable “restrictions” or “conditions” on assignment under 11 U.S.C. § 365(f)(1).
2. Whether such provisions are enforceable as mere allocation of proceeds or as reasonable consent/transfer fees, including in the shopping-center lease context.

## Decision

- The court held the profit-sharing provisions unenforceable under 11 U.S.C. § 365(f)(1).
- The court concluded the clauses functioned as restrictions or conditions on assignment by diverting value from the estate when an assignment occurs.
- The court rejected the landlords’ arguments that the clauses were merely bargained-for value allocation or permissible fees.
- The court determined that the escrowed assignment proceeds attributable to the challenged clauses belonged to the estate, not the landlords.

## Legal Principles

- Under 11 U.S.C. § 365(f)(1), a debtor may assign an unexpired lease notwithstanding provisions that “prohibit[], restrict[], or condition[]” assignment.
- A clause can violate § 365(f)(1) based on its economic effect; provisions that siphon off a material portion of assignment value operate as assignment restrictions even if they do not expressly bar assignment.
- Bankruptcy policy favors allowing the estate to realize the full value of assignable leases, subject to statutory protections such as cure, adequate assurance, and the shopping-center protections in § 365(b)(3).
- Shopping-center protections under § 365(b)(3) address use, tenant mix, and future performance assurances and do not authorize landlords to take a share of assignment proceeds through profit-sharing provisions.
- Percentage-of-profit transfer charges are not treated as “reasonable fees” when they are not tied to actual administrative or transactional costs of reviewing an assignment.

## Conclusion

The court invalidated lease profit-sharing clauses that required the debtor to pay landlords a portion of assignment consideration, holding they impermissibly restricted or conditioned assignment under § 365(f)(1), and ordered that the disputed escrowed proceeds be retained by the estate.


In re Jamesway Corp., 201 B.R. 73 (Bankr. S.D.N.Y. 1996)