Bankrupt Tenant Must Pay Full Month's Rent Due

November 1, 2003

An Illinois office building tenant filed for bankruptcy and sent the owner notice that it intended to reject its lease, effective Nov. 2. On Nov. 1, the tenant paid the owner over $60,000 representing the prorated rent for the month based on the tenant's occupancy of the space until Nov. 4. The owner accepted the check but demanded the balance of the rent due for November. The tenant refused to pay, so the owner asked the bankruptcy court to order the tenant to pay the balance of the rent due for November, which it did. The tenant appealed.

An Illinois office building tenant filed for bankruptcy and sent the owner notice that it intended to reject its lease, effective Nov. 2. On Nov. 1, the tenant paid the owner over $60,000 representing the prorated rent for the month based on the tenant's occupancy of the space until Nov. 4. The owner accepted the check but demanded the balance of the rent due for November. The tenant refused to pay, so the owner asked the bankruptcy court to order the tenant to pay the balance of the rent due for November, which it did. The tenant appealed.

A federal appeals court ruled that the tenant had to pay the full month's rent due for November. The court said that the tenant was responsible for all obligations that arose after it filed for bankruptcy and before it rejected the lease. Since the lease said the rent was due in full on the first of each month, the obligation to pay November's rent arose on Nov. 1—before the tenant's rejection was effective, the court said. Also, the court noted that the lease didn't permit prorating rent in the event of bankruptcy [HA-LO Industries, Inc. v. Center Point Properties Trust].

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