NY Bankruptcy Court Pivots on Commercial Rent Damage Cap

Mark Edelstein, Theresa Foudy, and Martha Martir authored an article for Law360 discussing a recent opinion by the U.S. Bankruptcy Court for the Southern District of New York in In Re: Cortland Liquidating LLC which effectively lowered the Bankruptcy Code Section 502(b)(6) cap on rejection damages that a commercial real estate landlord may claim by holding that the cap should be calculated using the time approach rather than the rent approach.

“While it remains to be seen if other SDNY bankruptcy judges will follow Judge Wiles in adopting the time approach, the Cortlandt decision calls into doubt whether landlords will be able to take advantage of the rent approach when asserting future rejection damages claims in the SDNY.”

They added: “Until Congress clarifies the meaning of Section 502(b)(6)(a), or the U.S. Court of Appeals for the Second Circuit weighs in, there will be uncertainty as to the proper method for calculating landlord rejection damages claims in the SDNY. Nonetheless, should other SDNY bankruptcy judges follow Judge Wiles’ lead, the SDNY could start looking like a more attractive venue for prospective debtors planning to reject significant commercial leases.”

Read the full article.