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Cleaning up After Debtor/Tenants

By Adam J. Rosen and John C. Wright
February 26, 2008

The scenario is not all that unusual. The debtor files Chapter 11, rejects a commercial real property lease and moves out ' except the debtor leaves behind unwanted equipment, debris, and sometimes, damaged property. The landlord then has to clean up the property and make any necessary repairs, and as a result, has a claim against the debtor for those costs. Courts have reached conflicting conclusions regarding whether clean-up and repair costs are capped under Code
' 502(b)(6). The Ninth Circuit's recent decision in In re El Toro Materials Co., Inc., 504 F.3d 978 (9th Cir. 2007) has cleared up some of the confusion by reversing in part In re McSheridan, 184 B.R. 91 (B.A.P. 9th Cir. 1995), a Ninth Circuit BAP decision which held that a landlord's entire claim was capped. Several other courts have relied on the McSheridan decision, including In re Foamex International, Inc., 368 B.R. 383 (Bankr. D. Del. 2007), a recent Delaware bankruptcy court decision.

Capping Cleanup Costs

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