Introduction

Many landlords are very familiar with provisions of the United States Bankruptcy Code dealing with assumption and rejection of leases. However, the particular consequences of lease rejection may not be as well known. For example, once a lease is rejected or deemed to be rejected, a landlord may not know its rights with respect to regaining possession of the leased premises. A recent case from a Florida bankruptcy court shed some light on this issue when it held that after a debtor has rejected a lease, the tenant must surrender the premises to the landlord.

The Eleventh Circuit Court of Appeals has just issued an opinion that should concern anyone doing business with a debtor in bankruptcy. In short, the court ruled that a company that supplied $1.9 million worth of goods to a debtor after the petition date had to return the debtor's payment. The reason? The debtor did not have permission from the court or its secured creditor to use the money. The payments were for value given post-petition and were apparently made in accordance with the pre-petition practice between the parties.