How a Landlord's Administrative Claim for Stub Rent Could Be Curtailed under § 503(b)
By: Timothy Poydenis
St. John's University School of Law; Jamaica, N.Y.
The majority of real property leases provide for prepayment of rent on the first of each month.[1] However, tenants filing for chapter 11 do not always pay on the day their rent is due and payable. This creates situations where tenants will fail to pay rent when it is due, subsequently file for bankruptcy and then occupy the premises after the petition date. While these debtors may use and occupy the premises after filing for bankruptcy, landlords are not necessarily without a remedy to collect money for that period. Landlords will seek payment of “stub rent,” which is “the rent for the period from the petition date through the first of the following month.”[2] Courts use two different approaches to determine whether a landlord has an administrative claim for stub rent. Some courts hold that an administrative claim for stub rent is allowed under § 365(d)(3),[3] while others hold that an administrative claim for stub rent is allowed under § 503(b).[4] Recently, in In re Sportsman’s Warehouse Inc., the Bankruptcy Court for the District of Delaware adopted the second approach.[5] However, it held that while an administrative claim for unpaid rent is permitted under § 503(b) as an actual and necessary expense of preserving the estate, the landlord is only entitled to an administrative claim in the amount of the benefit to the estate.[6] The court explained that because chapter 11 proceedings are designed to assist the debtor in rehabilitating its business, the debtor should only be required to pay an amount equal to the benefit received by occupying the premises post-petition, which may or may not equal the amount specified in the lease.[7]
