Section 365(d)(3) of title 11 of the United States Code (the “Bankruptcy Code”) authorizes a court to “extend, for cause, the time for performance of any [rent] obligation[‘s] [on unexpired leases of nonresidential real property] that arise within 60 days after the date of the order for relief[.]” Historically, courts have recognized that under § 365(d)(3), there is a statutory obligation on debtors to pay rent on unexpired leases. Courts have also recognized that if a debtor’s rent obligation is deferred, lessors are entitled to adequate protection. However, courts are divided on the exact timing of when a debtor’s statutory obligation to pay rent arises, what circumstances permit courts to defer a debtor’s rent obligation, and the subsequent treatment of lessors’ claims. Consequently, the Covid-19 pandemic has created challenges that have further complicated the already unclear applicability of § 365(d)(3).
This memorandum analyzes a court’s ability to defer a debtor’s statutory rent obligations on unexpired leases. Part I discusses the majority and minority positions regarding § 365(d)(3) rent deferral issues that were prevalent in jurisprudence prior to the Covid-19 pandemic. Part II addresses how the Bankruptcy Court for the Eastern District of Virginia, one of the first courts to address the issue of rent deferral during a pandemic, approached these unparalleled circumstances. Part III analyzes how courts have since dealt with these issues throughout the pandemic.