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The issue of pro-ration of rent or other obligations arising under the lease may arise at two points in time. First, the obligations arise after the order for relief under an unexpired lease of nonresidential real property before the lease is assumed or rejected; and second, upon rejection. The problem exists when the order for relief, or rejection, occurs during the lease period or billing cycle, usually a month.
Courts have taken differing approaches. One pro-rates obligations based upon accrual, so that rent, for example, billed monthly, accrues on a daily basis. The second approach determines when the obligation is owed under the lease, for example, rent is due when billed. The nature of the obligation and the point in time may change the test applied.
The Seventh Circuit has adopted the pro-ration approach at the inception of the case. In an early case, the Circuit addressed the problem of real estate taxes that accrued before the order for relief but were billed (on an annual basis) after the order for relief. The Seventh Circuit held that the prepetition tax accruals were not obligations arising after the order for relief even though taxes were not due until billed and the billing occurred post-petition. Only the post-petition tax accrual had to be paid under § 365(d)(3).
The pro-ration approach may also apply upon rejection of the lease. In the Southern District of New York, in a lengthy opinion, the court collected the different opinions of the judges in the district and elsewhere and held that the obligation to pay rent under § 365(d)(3) extended only
