DETROIT – A federal bankruptcy judge has approved the sale of Detroit’s historic Leland Hotel, clearing the way for new ownership of the long-troubled downtown property, but requiring that former tenants displaced after a power failure be compensated before the deal is finalized.
U.S. Bankruptcy Judge Maria L. Oxholm of the Eastern District of Michigan approved the sale following a May hearing and a subsequent bench ruling authorizing the transfer of the property in a Chapter 11 case involving Leland House Limited Partnership.
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The court approved the sale to Mudhish Development Company LLC, the winning bidder identified through a court-supervised auction. Court filings value the purchase agreement at approximately $3 million.
Sale process meets legal standard
Oxholm found that the sale process was properly noticed, conducted in good faith, and that the highest and best offer for the property was produced. No official committee of unsecured creditors was appointed in the case.
Under the order, the property will be transferred free and clear of most liens and claims, with those interests instead attaching to the sale proceeds.
The court also determined the transaction met requirements under Section 363 of the U.S. Bankruptcy Code.
The ruling requires that a secured claim held by Next Bridge Funding LLC, the debtor’s post-petition lender, be paid in full at closing, along with other outstanding obligations, including city water and sewer claims.
Court-approved professional fees and broker commissions will also be paid from the sale proceeds.
Oxholm authorized the debtor to proceed to closing without further court approval, though proceeds must be held and distributed under future court orders, except for specified payments.
The judge also designated the buyer as a “good faith purchaser,” granting it protections from certain legal challenges and shielding the transaction from avoidance claims.
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Displaced tenants must be compensated
The sale includes conditions addressing displaced tenants, who the court said hold leasehold interests that require “adequate protection,” a legal standard that ensures parties are compensated for lost interests under bankruptcy law.
Those tenants were removed following a power failure at the building last year.
The court said compensation for the value of remaining lease interests may be required and ordered that related funds be held pending further proceedings.
The Detroit Tenants Union has until the end of the month to file a motion outlining requested compensation, with objections due in July.
The court retained jurisdiction over disputes related to the sale and its implementation.
The transaction is authorized to proceed, but remains subject to final closing steps.
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