## Facts

- Goody’s Family Clothing, Inc. and affiliates operated retail stores under nonresidential real property leases requiring monthly rent paid in advance on the first of each month.
- Goody’s did not pay rent due June 1, 2008, and filed Chapter 11 petitions on June 9, 2008.
- After filing, Goody’s obtained authority to close certain stores and conduct going-out-of-business sales at leased locations, using the premises during June 9–30, 2008.
- Goody’s paid full rent for July on July 1, 2008, but paid nothing to landlords for the post-petition portion of June (the “stub rent” period between the petition date and the next rent due date).
- Landlords sought allowance of stub rent as an administrative expense under 11 U.S.C. § 503(b), arguing the estate benefitted from post-petition occupancy and sales.
- Goody’s argued the entire June rent obligation arose prepetition because rent was due June 1, so the landlords held only a prepetition unsecured claim for June rent.

## Issues

1. Whether 11 U.S.C. § 365(d)(3) displaces 11 U.S.C. § 503(b) so that a landlord cannot obtain administrative-expense allowance for stub rent when monthly rent became due prepetition.
2. Whether the Third Circuit’s obligation-timing interpretation of § 365(d)(3) prevents administrative-expense recovery for post-petition use and occupancy under § 503(b).

## Decision

- The Third Circuit affirmed allowance of the landlords’ stub rent as an administrative expense.
- Section 365(d)(3) does not supplant § 503(b); landlords may seek administrative-expense treatment under § 503(b) for the post-petition benefit conferred on the estate.
- Even if § 365(d)(3) does not require payment because the rent obligation became due prepetition, § 503(b)(1)(A) can support an administrative claim for the value of post-petition use and occupancy.
- The court approved prorating monthly rent to determine the administrative-expense amount attributable to June 9–30.

## Legal Principles

- Section 365(d)(3) and § 503(b) operate concurrently; § 365(d)(3) is not an exclusive remedy governing a landlord’s recovery during the pre-assumption/rejection period.
- Administrative expenses under § 503(b)(1)(A) require a post-petition transaction or use that provides an actual and necessary benefit to the estate.
- When a debtor continues occupying leased nonresidential property post-petition before the next rent due date, the landlord may recover “stub rent” as an administrative expense measured by the fair value of that benefit, commonly determined by pro rata allocation of contract rent.

## Conclusion

The Third Circuit held that landlords are entitled to administrative-expense allowance for stub rent reflecting the estate’s post-petition use and occupancy of leased premises, and that § 365(d)(3)’s timing rule does not bar recovery under § 503(b).


In re Goody’s Family Clothing, Inc., 610 F.3d 812 (3d Cir. 2010)