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In re DeCicco of Montvale, Inc.

239 B.R. 475 (D. N.J. 1999)

LANDLORD-TENANT; BANKRUPTCY; ACCRUED CHARGES—A debtor-in-possession leasing nonresidential real property must pay all obligations which come due during the post-petition, pre-rejection period in full, regardless of whether some of those charges accrued pre-petition.

A debtor in bankruptcy sought an order from the court to the effect that its portion of common area maintenance charges (CAM), real estate taxes, and any other additional rent payable as post-petition lease obligations were limited to the amount that accrued since the petition date. The guarantor of the debtor’s lease obligations objected. Pursuant to a lease modification agreement, the tenant agreed to pay a prorated portion of its landlord’s cost of maintaining the common areas of a shopping center. That share was to “be due and payable within THIRTY (30) DAYS after submission by the Landlord to the Tenant of the statement showing the computations… .” A similar obligation to pay a prorated portion of real estate taxes was included within the memorandum, making that obligation due and payable within thirty days after the landlord had paid such taxes, “upon submission to the Tenant by the Landlord of a verified statement showing the computations upon which” the tax payments were based. The Court determined that those lease terms were bargained for and were not merely boilerplate. This was based on the Court’s presumption that because the modification agreement contained language specific to the changes effected by the parties, those terms were negotiated. Consequently, it sought to give effect to the intent of the parties as reflected by the language within the modification agreement.

About two months after the bankruptcy petition was filed, the tenant received a letter from its landlord setting forth the tenant’s share of CAM charges and taxes. The taxes were computed with respect to two tax payments made by the landlord prior to the bankruptcy and one made after the bankruptcy. The tenant claimed that the landlord did not provide it with the supporting documentation required by the modification agreement to support those amounts. Specifically, the lease required the landlord to furnish its tenant with “detailed statements and back-up documentation, including all applicable bills, for the CAM and real estate charges.”

The applicable section of the Bankruptcy Code provides that: “[t]he trustee shall timely perform all of the obligations of the debtor ... arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, ... .” There were no reported decisions on this issue in the Third Circuit. The Court found that case law outside the circuit demonstrated a split of authority in interpreting this portion of the Code with respect to the type of claim that a landlord has for rent or taxes which come due in the post-petition, pre-rejection period. The tenant asked the Court to follow the majority approach, commonly known as the accrual method. “Under the accrual method, a debtor’s post-petition obligations under a lease of nonresidential real property apply only to those obligations which accrue during the post-petition, pre-rejection period. The date the post-petition obligations are actually due is irrelevant under this method.” The landlord and the tenant’s guarantor, on the other hand, asked to the Court to adopt the “billing date approach, which states that a debtor-in-possession leasing nonresidential real property must pay in full all amounts which come due during the post-petition, pre-rejection period, regardless of whether some of those charges accrued pre-petition.” Therefore, a crucial question under the billing date approach is the date upon which the obligations become due. The tenant pointed to the legislative history of the 1984 amendments to the Bankruptcy Code and pointed to Senator Hatch’s comments that Congress simply intended to protect landlords from becoming involuntary post-petition creditors, and ensure that landlords received “current payment” for “current services.” The landlord and the tenant’s guarantor argued that the statute was clear on its face and contained no ambiguity that necessitated resort to legislative history. The Court adopted the billing date approach. First, it found that the statute was clear on its face. “The Court presumes that Congress intended its words to have ordinary meaning.” Applying the plain approach to the statutory construction, it appeared that Congress chose to use the word “obligation” rather than “claim.” “While Congress certainly knew how to use the word claim, they chose instead to use the word obligation.” Under that analysis, the obligation of this tenant to pay CAM charges and real estate taxes did not arise until after the billings were sent and the supporting documentation was furnished. It rejected the argument that the “obligation” to pay taxes “arose” when the lease was first signed. In doing so, it noted that such a construction of the statute would make superfluous the use of the term “arising” in the statute, and this could not be what Congress meant. Further, in order for a creditor to have a claim, there must be a “right to payment,” and “courts must focus on the point at which that ‘right of payment’ arises.”


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