“All Obligations”: The Consequences of Rejecting a Commercial Lease in Bankruptcy
11 U.S.C. § 365 grants a bankruptcy trustee or debtor in pos-session the power to reject executory contracts and unexpired commercial leases. Subsection (d)(3) specifies that, while the bankrupt party is deciding to assume or reject a lease, the trustee must “timely perform all the obligations of the debtor” under the lease. This subsection has given rise to significant litigation when a debtor opts to reject their lease in the middle of a rental period, particularly where the lease makes the entire period’s rent due in advance on the first day of the period. The landlord and bankrupt parties in this situation disagree about what a bankrupt party is obligated to pay: the entire rent for the final rental period or a prorated cost that covers the period prior to the rejection. However, the plain text of the statute only embraces the former interpretation. Beyond the clear textual basis, additional interpretive resources like the statutory purpose and preferable policy outcomes also align with this interpretation, resulting in an undeniable interpretation in favor of landlords.