The Security of Security Interests in Hotel Revnes

Abstract

Congress revised federal bankruptcy law to include room revenues specifically as part of the lender's interest in a hotel bankruptcy. Before this change in the statute, the status of that cash flow was not clear. Part of the confusion stems from a provision in the bankruptcy code that excludes from the lender's interest any property acquired by a debtor after a bankruptcy filing, which seems to include hotel room revenues. In a 1994 law Congress made it clear that room revenues would not be so excluded. Certain court rulings, however, have muddied this attempt at clarity. An Ohio case distinguishes between room revenues and the operating company's remittances to the hotel owner. The court viewed the management contract in that case as an agreement between two principals (the owner and the operator) rather than an agency agreement-thereby distinguishing contract remittances from room revenues. In a Pennsylvania case the court commented (but did not rule) that lenders would not have the code's protection if their loan documents merely referred to "rents."