My commercial tenant has filed a Chapter 11 bankruptcy and intends to reject the lease. Now what?
May 1, 2009

A: Rejection constitutes a breach of the lease that relates back to before the filing of the bankruptcy. The landlord is then entitled to file a proof of claim in the bankruptcy as a prepetition, nonpriority creditor for whatever damages it incurred as a result of the breach. The amount of the claim is limited by the Bankruptcy Code to "the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease." There is some authority that this amount must be further reduced to present value as of the date of filing of the petition. Landlord must further reduce its claim by the amount of the security deposit. The amount of the landlord's claim for rejection of the lease will most likely be an unsecured claim. Most unsecured creditors in Chapter 11 cases are paid only a fraction of their claim.

If you have questions, please contact:
John Wise, Esquire

JWise@TandLLaw.com
(410) 752-2468