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defaults, and had litigated those matters before the bankruptcy court, which had not yet ruled. In the interim, the debtor sought to exercise a renewal option under its lease. The debtor argued that it could exercise the renewal option even though it had not cured pre-petition defaults. The landlord argued that unsatisfied post-petition defaults were a separate, different barrier to exercise of the renewal option. The Ninth Circuit Bankruptcy Appellate Panel held that under Southwest Aircraft Services, unsatisfied post-petition obligations due under § 365(d)(3) are material to the bankruptcy court's exercise of discretion in deciding whether to allow a debtor to exercise a renewal option before assumption of the underlying lease. Unsatisfied post-petition defaults would not necessarily prevent exercise of the renewal option, but could be a basis for denial of the exercise of the option under the law.
Section 365(d)(4) creates a 60-day period after the order for relief within which the debtor or trustee must assume or reject an unexpired lease of non-residential real property. If the case is converted to chapter 7 during the 60-day period, a new period does not start, because a new order for relief is not entered.
5.1 In General.
The status of the non-debtor party under an executory contract or unexpired lease that has neither been assumed nor rejected is not addressed in § 365 except as to certain favored special interests, such as commercial landlords, personal property lessors and aircraft lessors.
Section 365 does not address most questions that may arise before an executory contract is
