The recent increase in retail bankruptcies has caused the bankruptcy courts and litigants to revisit a variety of legal issues, including the debtor’s obligation to pay post-bankruptcy rent while it decides which leases to assume or reject. Recently, the United States Bankruptcy Court for the District of Delaware was asked to determine whether the debtor was required to pay stub rent in a case involving a retail chain with 350 locations. In re Goody’s Family Clothing, Inc., 392 B.R. 604 (Bankr. D. Del. 2008). The bankruptcy court held that the landlord was entitled to an order allowing the claim for stub rent, but was not entitled to immediate payment.
Goody’s filed a petition under Chapter 11 of the United States bankruptcy code on June 9, 2008. Since virtually every real estate lease in the case called for rent to be paid on the first day of the month, Goody’s did not pay the June 2008 rent, arguing it is a prebankruptcy obligation which does not have to be paid under bankruptcy code Section 365(d)(3) and existing case law, including CenterPoint Properties v. Montgomery Ward Holding Corp ., 268 F.3d 205 (3d Cir.2001). Under Section 365 of the bankruptcy code, a tenant under a nonresidential lease is only required to timely perform all the obligations. . . arising from and after the order for relief (i.e., the date the voluntary bankruptcy petition is filed). The Montgomery Ward court held that obligations only arise when a party becomes legally obligated to perform the obligation which, in this case, is when the rent is required to be paid under the lease. Since the June 2008 rent was due before the bankruptcy was filed on June 9, 2008, the obligation to pay June 2008 rent did not arise post-petition.
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