Jason Realty's Restrictions on Use of Rents as Cash Collateral Do Not Apply to a Debtor's Use of Hotel Revenues

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The Bankruptcy Court for the District of New Jersey (Kaplan, J.) recently held that hotel revenues (including revenues generated from room occupancy, food and beverage sales, catering, gift shop purchases, spa, and related hotel services) do not constitute “rent” within the meaning of the Third Circuit decision of In re Jason Realty, L.P., 59 F.3d 423 (3d Cir. 1995). Therefore, even if they are absolutely assigned to the secured lender, hotel revenues can be used by the debtor as cash collateral to pay its ordinary and necessary operating expenses and to reorganize. In re Ocean Place Dev., LLC, No. 11-14295 (Bankr. D.N.J. Mar. 31, 2011). Ocean Place Development, LLC (“Debtor”) owned a 254-room beachfront resort in Long Branch, New Jersey, which included a large conference center, three restaurants, a bar/lounge, a full-service spa, and numerous other amenities.

Ocean Place owed approximately $58 million pursuant to the terms of its loan agreement with AFP 104 Corp., as successor to Barclays Capital Real Estate Inc. (“AFP”). Repayment of the loan was secured by, among other things, a Mortgage and an Assignment of Rents and Leases (the “Assignment of Rents”). Both the Mortgage and Assignment of Rents defined the term “rents” broadly, to include all “… revenues and credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreation facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of the property or rendering of services by Borrower [Debtor] or any operator or manager of the hotel . . . .”

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