## Facts

- TSB, Inc. (TSB) operated a tavern in Boise, Idaho, on nonresidential premises it leased from Knapp‑Block 44, LLC (Knapp).
- TSB filed a Chapter 11 bankruptcy case and continued operating the tavern as debtor in possession.
- The case was later converted to Chapter 7, and a trustee was appointed to administer the estate.
- After conversion, the lease was deemed rejected under 11 U.S.C. § 365.
- Knapp told the trustee it would lease the premises to a new tenant, City Grill, which also expressed interest in buying some of the tavern’s personal property (including tables, chairs, and bar equipment).
- The trustee left estate personal property on the premises with the understanding that City Grill would purchase it.
- Knapp entered into a new lease with City Grill and allowed City Grill to begin renovations while the estate’s property remained on-site.
- The estate property stayed on the premises for more than three months after rejection, occupying roughly 10% of the space, until it was sold to City Grill.
- Knapp filed an application seeking allowance of an administrative expense for unpaid rent and related charges for (a) the Chapter 11 period and (b) the Chapter 7 period, including the post-rejection period when the estate’s property was stored on the premises.
- By the hearing, Knapp reduced its request to $1,709.80 (Chapter 11) and $15,844.50 (Chapter 7).

## Issues

1. To what extent was Knapp entitled to an administrative expense claim for unpaid rent and related charges incurred during the Chapter 11 period when TSB operated the tavern as debtor in possession?
2. After conversion to Chapter 7 and rejection of the lease, to what extent was Knapp entitled to an administrative expense claim for the period the trustee left estate property on the premises, occupying only a small portion of the space?

## Decision

- The court granted Knapp’s administrative expense application in part and denied it in part.
- For the Chapter 11 period, the court allowed an administrative expense claim of $761.00.
- For the Chapter 7 period, the court allowed an administrative expense claim of $2,002.63.
- The court declined to award full contract rent for the Chapter 7/post-rejection period where the estate’s use was limited to storage of property occupying about 10% of the premises.

## Legal Principles

- Administrative expense priority under 11 U.S.C. § 503(b)(1)(A) is limited to “actual, necessary costs and expenses of preserving the estate.”
- The party seeking an administrative expense bears the burden to prove (a) the expense arose postpetition and (b) the expense directly and substantially benefitted the estate.
- Rent under a lease may be evidence of the value of use and occupancy, but administrative allowance depends on the estate’s actual postpetition benefit, not merely the existence of a contract claim.
- After rejection of a nonresidential lease, a landlord’s administrative claim is measured by the reasonable value of the estate’s actual use of the premises (including storage), and may be reduced when the estate occupies only part of the space.
- Where the trustee’s post-rejection use is effectively storage and covers only a fraction of the premises, the court may apportion rent to match the portion of the premises actually used and the benefit received.

## Conclusion

In In re TSB, Inc., the bankruptcy court limited the landlord’s requested administrative rent to amounts proven to be actual, necessary, and beneficial to the estate, allowing only $761.00 for the Chapter 11 operating period and $2,002.63 for the Chapter 7 period because the trustee’s post-rejection use consisted of storing estate property that occupied only about 10% of the premises.


In re TSB, Inc., 302 B.R. 84 (2003)