Is a rent controlled tenancy an asset?

Interesting story from NY over the weekend about a court case which will determine whether a rent-controlled tenancy is an asset.

Here is a simplified version:

  • Woman in NYC has a rent controlled apartment
  • She runs up large credit card bills
  • She files Chapter 7 bankruptcy to get the creditors to charge off her debts
  • Her landlord steps in and offers to buy out her lease, with the money going to the creditors
  • His offer does not require her to move out, but would prevent her from passing the apartment on to her 50 year old son upon her death

The question is whether the woman’s rent controlled tenancy is (1) an asset which can be ordered sold by a judge in order to satisfy a debt; or (2) a public benefit, like food stamps or welfare, which can not be treated as an asset and sold off.

Why does this matter?

Obviously, if the rent controlled tenancy is an asset, then  any rent-controlled tenant who declares bankruptcy is under threat of being evicted, since the landlord may step in and offer to (partially) satisfy the creditors in exchange for freeing up the apartment.

If it’s not an asset, why can the tenant voluntarily agree to sell / monetize it under normal circumstances?

My personal view is that it is an asset and that it ought to be treated like one in all kinds of ways. For example, I think tenants ought to be able to borrow against their tenancies. And, when they accept money to move out, the money they receive ought to be treated as a capital gains, rather than as income.

We’ll have to wait for the court to figure out where it comes out on this…