The Bankruptcy Code (Title 11) contains many special, mandatory provisions that deal with commercial leases. Because certain issues arise depending on whether or not the tenant decides to assert its rights under the Bankruptcy Code, commercial landlords must carefully proceed when dealing with tenant-debtors. Commercial landlords thus deal with a plethora of issues when their tenants file for protection under the federal bankruptcy laws.
One of the primary reasons for the confusion is that a commercial landlord has several non-exclusive remedies to address certain events. These remedies are dependent upon multiple variables, including whether the lease expired or was terminated prior to the filing of the bankruptcy petition, whether any defaults under the lease are cured, whether the debtor remains in possession of the property after the filing of the bankruptcy petition, and whether the debtor defaults under the lease post-petition.
Commercial landlords typically have pre-petition claims under 11 U.S.C. § 502(b)(6) for all sums due under the lease as of the date of the filing of the bankruptcy petition, including unpaid rent and charges such as common area maintenance charges (CAMs, CAM reconciliations).
Commercial landlords have two types of post-petition claims available: claims arising under 11 U.S.C. §365(d)(3) and claims arising under 11 U.S.C. §503(b). This blog will address the first type and a future blog will address the second type.
A landlord’s claims arising under §365(d)(3) include amounts due for post-petition rent and charges incurred from the petition date through the date that the debtor assumes or rejects the lease. Tenant-debtors are required to make post-petition, pre-rejection payments without court intervention as such payments become due pursuant to the lease’s terms.
A landlord may file a motion for relief from the automatic stay seeking to enforce its state-law remedies if the debtor fails to make these payments in a timely fashion post-petition. A landlord may also compel the debtor to make these payments by court order, as well as file an administrative priority claim for any post-petition rents as they become due.
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