Case Summary:
Chapter 11 debtor converted to Chapter 7. After conversion, the Debtor did not assume or reject its long-term lease with Madison East Shopping Center Partners (MESC), nor were any payments made for the amount due under the lease as required by 11 U.S.C. § 365(d)(3). Sixty days after conversion, the lease automatically terminated pursuant to 11 U.S.C. § 365(d)(4). MESC sought immediate payment of post conversion rent under 11 U.S.C. § 365(d)(3). The Trustee objected to immediate payment, arguing that the disputed amount was entitled only to administrative expense priority because there is no provision in the Bankruptcy Code granting “super-priority” status to claims under Section 365(d)(3). The Trustee also stated that the bankruptcy estate did not have funds sufficient to make the payment. The Court determined that the language in Section 365(d)(3) requiring “timely performance” places payment of rent before the payment of administrative expenses. That is true even where the bankruptcy estate is administratively insolvent. Pre-rejection lease payments are required to be timely made. Where the Trustee does not perform that obligation, he cannot be excused from the consequence of his nonperformance. The claims must be paid when due, or in any event prior to allowed administrative expenses.

Statute/Rule References:
11 U.S.C. § 363(c)(1)
11 U.S.C. § 365(d)
11 U.S.C. § 507
11 U.S.C. § 503(b)(1)

Key Terms:
Claims - Priority