Ninth Circuit Resolves Status of Post-Petition, Pre-Assumption/Rejection Rent Obligation Arising in Bankruptcy

On June 20, 1994, the Ninth Circuit Court of Appeals ruled that a landlord of non-residential real property is entitled to an administrative expense claim at the full rate specified in the lease for the debtor’s post-petition occupancy, irrespective of whether the estate benefited from such occupancy. Towers v. Chickering & Gregory (In re Pacific-Atlantic Trading Co.), 1994 U.S. App. Lexis 15004 (9th Cir. 1994). Prior to the Ninth Circuit's ruling, the Ninth Circuit Bankruptcy Appellate Panel had ruled that a landlord's administrative expense claim for pre-rejection/pre-assumption, post-petition rent only could be allowed to the extent that the estate was benefited by its use of the leased premises pursuant to Bankruptcy Code § 503(b). By its ruling, the Ninth Circuit has eliminated consideration of § 503(b) in favor of applying Bankruptcy Code § 365(d) and thereby eliminated the debtor's incentive to delay the assumption/rejection decision and the landlord's burden of establishing benefit to the estate in order to be paid.

For the full story, please view the PDF.