Landlords May Require Payment of Entire Month’s Rent Even if Debtor Rejects the Lease in Mid-month

In a recent case that may prove beneficial to landlords, the Bankruptcy Court for the Northern District of Ohio ruled that a landlord is entitled to a full month's post-bankruptcy rent even if, pursuant to Bankruptcy Code Section 365, the debtor effectively rejects the lease before the end of the month. In In re Koenig Sporting Goods, Inc. (June 11, 1998), the Court found that rent payments were due on the first day of each month under the debtor's lease, and the lease rejection date was December 2, 1997. The Court ruled that, not withstanding decisions to the contrary and the apparent windfall to landlords, the plain language of Section 365(d)(3) required the debtor to make all contractual payments due during the post-bankruptcy, pre-rejection period even if a portion of such payments may be attributable to a post-rejection period.

Koenig Sporting Goods, Inc. is not consistent with many other courts that have attempted to enforce a more equitable approach to post-petition obligations. Nevertheless, landlords should consider Koenig Sporting Goods, Inc. in preparing claims against a debtor/lessor who has rejected a lease of real estate.