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because § 1113 prohibits a debtor from escaping its obligations under a collective
bargaining agreement absent modification pursuant to § 1113, all claims arising under an
unmodified collective bargaining agreement must be paid in full, even if they arose
propitiation. The Second and Third Circuits have rejected that analysis, concluding that
such claims are subject to the priority rules of §§ 502, 503 and 507.
The Code imposes specific obligations on debtors who are lessees of nonresidential real property: a requirement to keep current obligations current, beginning within 60 days after the commencement of the case, § 365(d)(3); and a requirement to or assume or reject such leases 120 days (60 days pre-BAPCPA) after the commencement of the case, or else they will be deemed rejected, unless the court extends that time within such period. These requirements frequently lead to litigation early in a chapter 11 case.
A. Current Obligations
Section 365(d)(3) requires the debtor to keep current on all obligations arising under a nonresidential real property lease from and after the commencement of the case (and § 365(d)(10) similarly provides for personal property leases). It permits courts to
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extend the time for performance, but not beyond the 60 day after commencement of the case. As a practical matter most debtors seem to assume the Code provides an automatic 60-day moratorium, rather than seeking a court order extending the performance time for 60 days, and most landlords seem to abide this process.
Litigation may arise as to what constitutes an "obligation . . . arising from and after the order for relief," particularly under net leases that require the debtor tenant either to pay, or to reimburse the landlord for, real property taxes as they fall due. If the tax due date falls postpetition, but includes a large amount of taxes that accrued prepetition, does § 365(d)(3) require that entire tax bill to be paid, or only the pro-rata postpetition portion of it? The former rule is called the "billing date" approach, and the latter the "accrual" approach.
Although there is a split in the cases, the Seventh Circuit and the majority of lower courts follow the "accrual" approach, holding that the debtor need only pay the pro-rata portion of taxes that accrued postpetition. The Third Circuit has adopted the billing date approach. And even though the Seventh Circuit follows the accrual approach, it held a debtor liable for the full month's rent that became due on the first of the month even though the least was rejected on the fourth day of the month. The opinion distinguished Handy Andy, albeit not convincingly, and relied on a Sixth Circuit case that had reached the same result.
