In a 22 page decision released April 20, 2015, Judge Carey of the Delaware Bankruptcy Court provided guidance as to the calculation of lease rejection damages. Judge Carey’s opinion is available here (the “Opinion”).
The interpretation of 11 U.S.C. Section 502(b)(6) differs depending on the court which is addressing the issue. This is an issue that the Third Circuit has not ruled on and, as far as I am aware, the first time the Delaware Bankruptcy Court has published an opinion directly addressing the issue. The dispute: The statute caps a landlord’s rent claim at “the greater of one year, or 15 percent.” So, what is the 15% referring to: The total amount of payment due under the lease, or 15% of the remaining lease period? Because many leases include increasing rent payments, the total amount due calculation will typically be larger than the amount due over the next 15% of the lease term. The quick answer of Judge Carey’s Opinion? 15% refers to the time remaining, not the amount remaining.
Filene’s Basement (the “Debtor”) had, like countless debtors before, rejected a lease through the bankruptcy process. In this instance the landlord decided that rather than settling, like most litigants do, this landlord fought the good fight and held out until the Court issued its order.