Section 365(d)(3) of the Bankruptcy Code requires the debtor-tenant to “timely perform all the obligations …. under any unexpired lease of nonresidential real property” until such time that the tenant assumes or rejects the lease. If a tenant files for bankruptcy and remains in possession of the property, yet fails to pay rent as provided for under the lease, the landlord should consider filing a motion for an administrative claim.
In drafting the Bankruptcy Code, Congress intended for tenants who remain in possession of property to abide by the terms of the lease. If the debtor-tenant maintains possession and use of the property, the tenant is receiving a benefit and the landlord is entitled to an administrative expense claim. Although the landlord is entitled to the “fair market value” for purposes of determining the amount of its claim, there is a presumption that the rental amount provided in the lease represents fair market value. If the tenant believes it is entitled to pay an amount less than the rate provided for in the lease, it has the burden of showing why the contract rate is not fair market value.
Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP. Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at email@example.com.