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In the Spotlight: Dealing with Stub Rent After <i>In re Oreck</i>

By John B. Spitzer
October 02, 2014

A bankruptcy judge recently held that lessors of a debtor's corporate headquarters were not entitled to administrative expense priority under 11 U.S.C. ' 365(d)(3) for 25 days of unpaid “stub rent” for the period between the Chapter 11 petition and the first post-petition rent payment. In re Oreck (Bankr. D. Tenn., Mar. 10, 2014). The court held that the lessors' stub rent claim was a prepetition debt that was not within the scope of ' 365(d)(3) and was not entitled to administrative expense priority under section 503(b)(1).

Does the Billing Date Method or Proration Approach Apply?

“Stub Rent” has been defined as the amount due a commercial landlord for a period of occupancy and use between the petition date and the first post-petition rent payment. In re Goody's Family Clothing Inc., 610 F.3d 812, 815 (3d Cir. 2010). In Goody's, the court said that while the Bankruptcy Code does not address the landlord's remedy if a debtor-tenant fails to pay post-petition rent as ' 365(d)(3) requires, most courts have held that the landlord may recover rent by filing an automatic administrative expense claim.

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