Ansell.Law Shareholder Anthony J. D’Artiglio and Associate Nicole A. Benis successfully secured a victory for a client in the United States Bankruptcy Court District of New Jersey, ensuring the client was awarded an administrative expense claim for a portion of unpaid rent due under a commercial lease over the United States Trustee’s objection. A Landlord of a commercial building in Monmouth County was owed significant monies from the Debtor for rent, late fees and interest on unpaid rent, utilities, trash removal, and maintenance of the commercial property. The Debtor filed a Voluntary Petition for a Chapter 7 bankruptcy and failed to pay post-petition rent obligations. Furthermore, the Chapter 7 Trustee did not seek to reject the lease in a timely manner and did not pay any rent obligations post-petition.
Because the Trustee did not reject the lease, the bankruptcy estate continued to benefit from access to the property and the option to sell or assume the lease without paying post-petition rent pursuant to 11 U.S.C. § 365(d)(3). This severely disadvantaged the Landlord, being unable to relet the space due to the automatic stay while not collecting any rent for the property.
Ansell argued that, under 11 U.S.C. § 503(b)(1)(A) of the Bankruptcy Code, “there shall be allowed administrative expenses…including…the actual, necessary costs and expenses of preserving the estate.” By providing a benefit to the Trustee and bankruptcy estate (i.e., use and occupancy of the building) without receiving payment in return, the Landlord was entitled to an administrative expense claim to preserve its interests. The attorneys further disputed the Trustee’s argument that 11 U.S.C. § 726(a)(1) barred payment of an administrative expense claim, arguing to the Court that such a result is discordant with 11 U.S.C. § 365(d)(3) which requires the Trustee to pay all amounts due and owing under the lease unless and until rejection of the lease.
Following a hotly contested hearing before Chief Bankruptcy Judge Christine M. Gravelle, U.S.B.J., the Court agreed that the Trustee could not avoid the obligations set forth in 11 U.S.C. § 365(d)(3) if the Trustee does not timely reject the lease, even if the Trustee later believes that the lease did not provide any benefit to the estate. In short, the Court reasonably agreed that it is not a Landlord’s burden to subsidize a bankruptcy by receiving no payment while a Trustee waits to determine whether to assume or reject a lease.
As a result of D’Artiglio and Benis’ zealous advocacy, the Landlord was awarded a substantial administrative expense claim for post-petition pre-rejection rent and additional rent due and owing according to the lease.
If you have questions about this case or other bankruptcy law matters, please contact Anthony D’Artiglio, Nicole Benis, or your Ansell.Law attorney for assistance.
