Commercial Landlords: How to Get Your Rent Paid in Commercial Bankruptcy

Section 365(d)(3) of the Code is designed to protect nonresidential real property landlords from debtors not fulfilling their post-petition lease obligations. In applicable part, it states;

The trustee shall timely perform all of its obligations of the debtor, except those specified in Section 365(b)(2), arising from and after the order of relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title.

The objective of section 356(d)(3) of the Bankruptcy Code is clear – it requires that landlords receive timely compensation for the post-petition, pre-rejection use and occupancy of the landlord’s property at the contract rate specified in the leases instead of the landlords having to wait for payment of an administrative claim under section 503(d)(1) of the Bankruptcy Code.  The plain language of §365(d)(3) and the relevant case law clearly require Debtor’s immediate payment of all post-petition rents and related charges. In re Montgomery Ward Holding Corp., 268 F.3d 205, 209 (3d Cir. 2001) (holding that Congress, in adopting section 365(d)(3), intended a debtor to perform all leasehold obligations as they came due); In re Valley Media, Inc., 290 B.R. 73, 77 (Bankr. D. Del. 2003); In re Pudgie’s Dev. Of NY, Inc., 223 B.R. 421, 426 (Bankr. S.D.N.Y. 1998.

According to 11 U.S.C. § 365(d)(3), the Debtor must perform all the obligations due under the Lease, including the payment of rent, from the petition date until such time as the Lease is rejected.

Moreover section 503 (a) of the Bankruptcy Code provides:

An entity may timely file a request for payment of an administrative expense, or may tardily file such request if permitted by the court for cause.

 An award of administrative expense under section 503(b) of the Bankruptcy Code occurs where (1) there is a post-petition transaction between the creditor and the debtor; and (2) the bankruptcy estate benefits from the transaction. In re Garden Ridge Corp., 321 B.R. 669, 677 (Bankr. D. Del. 2005).

Using the above authority, a commercial landlord is able to go after rent owed from the time of the filing of the petiton to the rejection or assumption of the lease. An application has to be made with the court asking the trustee to pay the due rent. Here, the trustee is tasked with carrying out the obligations of the debtor as though the debtor were taking those actions directly.