Bankruptcy Code Section 502(b)(6) establishes a Statutory Cap on the damages a landlord can claim arising from the termination of a lease in bankruptcy case. Courts have split on how to calculate the Statutory Cap, whether and how to apply letters of credit to reduce the Statutory Cap, and whether the Statutory Cap applies to a landlord’s claims against a lessee’s debtor-guarantor.

On March 26, 2024, the US District Court for the Southern District of New York issued an opinion addressing the foregoing issues:

First, the not-so-great news in figures:

First, the not-so-great news in figures:

First, the not-so-great news in figures:

When a bankruptcy debtor rejects a lease, a landlord is entitled to a rejection damages claim. Under Section 502(b)(6) of the Bankruptcy Code, a landlord’s claim is capped at “the rent reserved by such lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining term of such lease.”

Courts have taken two different approaches in interpreting what constitutes the “15%” in the statute: (A) the remaining rent due under the lease; or (B) the remaining time under the lease.

The “Rent Approach”

First, the not-so-great news in figures:

First, the not-so-great news in figures:

First, the not-so-great news in figures:

First, the not-so-great news in figures:

First, the not-so-great news in figures: