Not a Lexis Advance subscriber? Try it out for free.

In re Hitz Rest. Grp.

United States Bankruptcy Court for the Northern District of Illinois, Eastern Division

June 2, 2020, Decided

Bankruptcy No. 20 B 05012, Chapter 11



Kass Management Services, Inc. ("Creditor") has presented two motions to the Court. The first seeks to enforce the obligation of Hitz Restaurant Group ("Debtor") to pay post-petition rent under 11 U.S.C. § 365(d)(3), and the second seeks to modify the automatic stay under § 362(d)(1). (Dkt. Nos. 21 & 29.) Specifically, Creditor requests that, if the Court does not grant its motion to modify the stay, the Court should order Debtor to immediately pay post-petition rent in the amount of $31,473.86 and to timely perform all future rent obligations. (Dkt. No. 21, p. 3.) Additionally, Creditor seeks an order requiring Debtor to vacate the premises immediately unless the post-petition rent is paid, and future obligations are kept current. (Id.)

Section 365(d)(3) requires a debtor-in-possession to "timely perform all the obligations of the debtor . . . arising from and after the order for relief under [*2]  any unexpired lease of nonresidential real property until such lease is assumed or rejected, notwithstanding § 503(b)(1) of this title." 11 U.S.C. § 365(d)(3).

] This section was added to the Bankruptcy Code in order to relieve landlords from the burden of proving that the rent payments they sought to collect from debtors prior to rejection were "actual and necessary" costs of preserving the bankruptcy estate. See In re Handy Andy Home Improvement Ctrs., Inc., 144 F.3d 1125, 1128 (7th Cir. 1998). The legislative history reflects congressional concern that lessors of nonresidential real property had frequently been forced to extend credit to an estate during the time given for assumption or rejection of the lease. In re Telesphere Comm'ns, Inc., 148 B.R. 525, 529 (Bankr. N.D. Ill. 1992). ] Thus, payments required by § 365(d)(3) are not mere administrative expenses under § 503(b)(1). Id. at 530. "Section 365(d)(3) requiring 'timely performance' places payment of rent before the payment of administrative expenses. That is true even where the bankruptcy estate is administratively insolvent. Congress has spoken clearly." In re C.Q., LLC, 343 B.R. 915, 916 (Bankr. W.D. Wis. 2005).

] Under § 365(d)(3), the first step in determining whether an obligation arises "from or after the order for relief" is to look at the terms of the lease. See In re Consolidated Indus. Corp., 234 B.R. 84, 86-87 (Bankr. N.D. Ind. 1999). Under section 2.1 of the parties' lease agreement and its accompanying exhibit labelled "Minimum Base Rent Schedule," rent is due on the first of each month. (Dkt. No. 21, [*3]  Ex. Part 1, p. 9, citing Dkt. No. 21, Ex. Part 2, p. 18.) Debtor filed its Chapter 11 petition on February 24, 2020. (Dkt. No. 1.) Thus, Debtor's contractual duty to pay February 2020 rent is a pre-petition obligation; its contractual duty to pay March 2020 rent is a post-petition obligation because it arose on March 1, 2020, after the order for relief. Accordingly, § 365(d)(3) would ordinarily require full payment of the March 2020 rent and all rental payments falling due thereafter. See In re Ha-Lo Indus. Inc., 342 F.3d 794, 800-01 (7th Cir. 2003).

Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.

Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.

2020 Bankr. LEXIS 1470 *



rent, majeure, lease, restaurants, post-petition, food, rental, beverages, triggered, delivery, curbside, pick-up

Bankruptcy Law, Administrative Powers, Executory Contracts & Unexpired Leases, Business & Corporate Compliance, Contract Conditions & Provisions, Contracts Law, Contract Conditions & Provisions, Contracts Law, Contract Interpretation, Automatic Stay, Relief From Stay, Procedural Matters