Decisions recently issued by the Third Circuit Court of Appeals and the United States District Court for the Southern District of New York have added fuel to a controversy that will likely have to be resolved by the Supreme Court.
In Centerpoint Properties v. Montgomery Ward Holding Corp. (In re Montgomery Ward Holding Corp.)[1]� , the Third Circuit held that �365(d)(3) of the Bankruptcy Code requires a bankruptcy trustee or Chapter 11 debtor-in-possession to pay the full amount of any real estate tax obligations maturing during the bankruptcy case under an unexpired commercial lease, even though a portion of the taxes accrued pre-bankruptcy. A New York district court employed similar reasoning in Urban Retail Properties v. Cineplex Entertainment Corp.[2]� in ruling that the bankruptcy estate must pay the entire amount of a capital expense obligation payable post-bankruptcy under a pre-petition construction lease. By rejecting the “proration approach” applied by other circuit courts and many lower courts, these decisions suggest that this issue may shortly be ripe for adjudication by the Supreme Court.
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