Bankruptcy Court Ruling Caps Landlord Claims in Bankruptcy for Debtors and Debtor-Guarantors. Lincoln Triangle Comm. Holding Co. v. Halperin (In re Cortlandt Liquidating LLC), 658 B.R. 244 (S.D.N.Y. 2024).
In In re Cortlandt Liquidating LLC, on appeal from a bankruptcy court order, the United States District Court for the Southern District of New York ruled that Section 502(b)(6) limits a landlord’s claim for damages resulting from the termination of a lease of real property to both debtor-tenants and debtor-guarantors. These damage claims are generally for unpaid rent reserved under the terminated lease. The court applied the “Time Approach,” method for capping landlord damages, which is based on the remaining time under the lease term rather than the total amount of future rent owed (including any escalations) under it. The latter has been termed as the “Rent Approach” method.
Formula: The statutory cap under Bankruptcy Code § 502(b)(6) is calculated by taking the greater of one year’s rent or 15% of the remaining lease term (up to three years), plus unpaid rent. Under the Time Approach, the cap is calculated based on the rent reserved for the first 15% of the remaining lease term, with a minimum of one year and a maximum of three years’ rent. This approach benefits unsecured creditors by preventing landlords from claiming the entire amount of future rent owed as damages (thereby diluting other unsecured creditors’ dividend due to the large claim) at the expense of other creditors in the same class.
This ruling protects estate assets by limiting excessive landlord claims, ensuring fairer distributions to unsecured creditors, and preventing landlords from gaining disproportionate recoveries in bankruptcy. It also clarifies that at least in the Southern District of New York, the Time Approach will be used for § 502(b)(6)’s formula.
For a deeper understanding of the legal principles and nuances discussed, we suggest reading the full case in its entirety. The case citation is: Lincoln Triangle Comm. Holding Co. LLC v. Halperin (In re Cortlandt Liquidating LLC), 658 B.R. 244 (S.D.N.Y. 2024). The content of this blog post is for informational purposes only and does not constitute legal advice. It provides a summary, and the referenced materials should be reviewed for full details. The information may not reflect current legal developments. Please consult with your attorney for legal guidance.
Topics Discussed: Bankruptcy for Debtors, Cap Claims, Debtor-Guarantors, Landlord Claims