Title

Bankruptcy Courts are Divided on Reducing a Debtor’s Obligation to Pay Rent When Government Regulations Restrict a Debtor’s Ability to Generate Income

Authors

Brittany M. Clark

Document Type

Research Memorandum

Publication Date

2021

Abstract

(Excerpt)

Many indoor retail establishments and restaurants that faced shutdowns due to the COVID-19 pandemic (the “Pandemic”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), and subsequently requested rent abatement under § 365(d)(3) of the Bankruptcy Code or state law. Notwithstanding the unique and extreme circumstances caused by the Pandemic, not all bankruptcy courts agree on the extent to which judges have the discretion to grant abatement motions for rent payments that are otherwise due under § 365(d)(3). Some bankruptcy courts have granted debtors the ability to defer post-petition rent payments, especially in the early months of the Pandemic. However, rent abatement is not a guarantee in chapter 11.

This Memorandum addresses the varying views of bankruptcy courts with respect to rent abatement. Part I examines the different rationales based in the Bankruptcy Code or contract doctrines for rent abatement. Part II illustrates examples of bankruptcy courts’ approach to rent abatement motions throughout different stages of the Pandemic.