## Facts

- U.L. Radio Corp. operated a retail television/appliance sales and service business as tenant under a 10-year commercial lease in a largely residential mixed-use building.
- The lease limited permitted use to the sale and service of televisions and appliances and treated noise emanating from the premises as a breach.
- The lease allowed assignment with the landlord’s written consent, which could not be unreasonably withheld.
- U.L. Radio filed a Chapter 11 case intending to liquidate and sought to monetize the lease by assuming it and assigning it to Just Heaven Restaurant, Ltd.
- Just Heaven planned to operate a restaurant in the space, reserved funds for buildout including soundproofing, and provided financial support including a personal guaranty of rent for an initial period.
- The landlord opposed assignment, asserting that the use restriction and anticipated restaurant noise made the assignment impermissible and justified withholding consent.

## Issues

1. Whether, under 11 U.S.C. § 365, a debtor-in-possession may assume and assign a lease to an assignee proposing a different use than the lease’s stated permitted use, when the restriction operates to block assignment.
2. Whether the debtor and proposed assignee provided adequate assurance of future performance sufficient to permit assignment notwithstanding the landlord’s objections.
3. Whether the landlord’s refusal to consent to the proposed assignment was unreasonable in light of the assignee’s assurances and the building’s mixed-use context.

## Decision

- The bankruptcy court granted the motion authorizing U.L. Radio to assume the lease and assign it to Just Heaven.
- The court treated the lease’s restrictive use and related provisions, as applied to defeat transfer, as unenforceable to the extent they restricted assignment under § 365(f).
- The court found adequate assurance of future performance based on the assignee’s financial showing, personal guaranty, and planned soundproofing and improvements.
- The court rejected the landlord’s objections as insufficient to justify withholding consent where the assignee’s performance risk was adequately addressed.

## Legal Principles

- Under 11 U.S.C. § 365(f), provisions that prohibit, restrict, or condition assignment of an unexpired lease are unenforceable to the extent they prevent a value-maximizing assignment in bankruptcy.
- A lease term framed as a permitted-use restriction may be disregarded in bankruptcy when its practical effect is to operate as a restraint on assignment, unless the landlord shows a material basis consistent with § 365’s protections.
- Assignment requires adequate assurance of future performance, which may be shown through financial capacity, guarantees, and concrete measures to comply with material lease obligations (including noise-related requirements).
- A landlord’s consent right that may not be unreasonably withheld does not permit refusal based on generalized objections when the assignee provides adequate assurance and the lease obligations can be performed.

## Conclusion

The court authorized assumption and assignment of the lease to a restaurant operator, holding that § 365(f) prevents enforcement of lease restrictions used to block transfer and that the assignee’s financial guarantees and mitigation measures satisfied adequate assurance of future performance, rendering the landlord’s refusal to consent unjustified.


Matter of U.L. Radio Corp., 19 B.R. 537 (Bankr. S.D.N.Y. 1982)