Landlord Claims: Calculating Capped Future Rent Claims Should Be A Simple Matter Of Arithmetic – Right?

In re MDC Systems, Inc., 488 B.R. 74 (Bankr. E.D. Pa. 2013) -

A chapter 7 debtor's landlord filed a proof of claim for ~ $1 million. An unsecured creditor objected on the basis that (1) the lease was terminated prepetition, so the landlord did not have any claim for rent, and (2) to the extent that it did have a claim, it was subject to the statutory cap on lease claims. Resolving this objection required the bankruptcy court to examine various aspects of lease claims under the Bankruptcy Code.

Under Section 502(b)(6) of the Bankruptcy Code, allowance of a landlord's damage claim is limited to the extent that:

If such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claim exceeds -

(A) the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of -

(i) the date of the filing of the petition; and

(ii) the date on which such lessor repossessed, or the lessee surrendered, the leased property; plus

(B) any unpaid rent due under such lease, without acceleration, on the earlier of such dates.

This case called into question both the proper date for evaluation of the rent cap, and the scope of claims subject to the cap.

In this case:

The debtor (which was the tenant under the lease) relinquished possession to a related entity - supposedly pursuant to an assignment, although the assignment was not approved by the landlord - sometime in 2004 or 2005. In mid-2005, the landlord sued the debtor for payment defaults. After the matter went to trial in 2007, the state court entered judgment in favor of the landlord for ~$1million. In fall of 2007 the landlord also began an ejectment action against the affiliate on the basis that it was an illegal occupant/subtenant. The affiliate vacated the premises and turned over the keys to the landlord December 29, 2007. The landlord subsequently obtained two new tenants after incurring costs in connection with reletting the space. The debtor filed bankruptcy on July 23, 2008. In response to the creditor's argument that the ejectment action terminated the lease under state law so that the landlord did not have a claim for rent, the court noted that (a) the ejectment action was not brought against the tenant, but rather its "illegal" subtenant, and (b) there was nothing in the record to support a finding that the landlord had terminated...