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Post-Petition Rent Obligations: Use and Occupancy v. Due Date

By Leslie A. Berkoff and Sandra M. Ishaq

Confused about when a real property landlord or equipment lessor can commence charging post-petition rental payments? Does a debtor's obligation under Section 365(d)(3) of the Bankruptcy Code, (hereinafter, the 'Code') to timely perform all obligations arising after the order for relief (or under Section 365(d)(10), 60 days after the order of relief), mean those obligations that 'arise' by virtue of actual post-petition use of the property as opposed to obligations that arise by virtue of the 'due date' of the rental payment by contract or invoice?

The two competing theories advanced in determining what obligations should be deemed a post-petition obligation under Section 365(d)(3) of the Code are: 1) the proration rule (majority approach); and 2) the billing date or performance date rule (minority approach). To date, three Circuits have addressed these theories as applied to non-residential real property leases. See In re Montgomery Ward Holding Corp., 268 F.3d 205 (3rd Cir. 2001); In re Koenig Sporting Goods, Inc., 203 F.3d 986 (6th Cir. 2000); In re Handy Andy Home Improvement Ctrs., Inc., 144 F.3d 1125 (7th Cir. 1998). To date, no Circuit has addressed this issue with respect to equipment leases. Discussed below is the treatment by other courts of this issue with regard to equipment lessors.

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