Bankrupt Tenant Owed Full Month's Rent

January 1, 2003

An office lease required the tenant to pay monthly rent in advance—on the first day of each month. The tenant moved into its space and then filed for bankruptcy. On November 1st, the tenant gave the owner a rent check pro-rated for three days' rent. And November 2nd, the tenant formerly rejected the lease. On November 4th, the tenant moved out of its space. The owner demanded that the tenant pay rent for the full month of November. The tenant argued that the lease authorized the tenant to pay only prorated rent.

An office lease required the tenant to pay monthly rent in advance—on the first day of each month. The tenant moved into its space and then filed for bankruptcy. On November 1st, the tenant gave the owner a rent check pro-rated for three days' rent. And November 2nd, the tenant formerly rejected the lease. On November 4th, the tenant moved out of its space. The owner demanded that the tenant pay rent for the full month of November. The tenant argued that the lease authorized the tenant to pay only prorated rent.

A federal district court in Illinois ruled that the tenant must pay rent for the full month of November. The court said that the federal bankruptcy code requires a tenant's trustee to perform all obligations of the tenant until a lease is rejected. And the tenant's obligation to pay the full rent for November arose on November 1st—the day before the tenant rejected the lease. Next the court noted that the lease permitted proration of rent in some instances—such as if the owner terminated the lease early—but not in others. The proration remedy was available only in situations expressly addressed in the lease, said the court. And the lease didn't expressly address proration of rent if the lease were rejected in a bankruptcy proceeding [Ha-Lo Industries, Inc. v. Centerpoint Properties Trust].

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