Opinion
No. 75 B 1735
May 8, 1980
Former Bankruptcy Act — Debts Having Priority — Administration Costs — Use and Occupancy Payments
While "use and occupancy" payments will be granted when the trustee secures the premises with locks and signs indicating physical possession, constructive possession alone without physical occupation is insufficient to charge an estate with "use and occupancy." Thus, the landlords were not entitled to use and occupancy payments under Section 64(a)(1) of the Bankruptcy Act for the period between the bankrupt's vacating and subsequently surrendering of the premises. See Sec. 64(a)(1) at ¶ 2625 and Sec. 507(a)(1) at ¶ 9027.
[Digest of Opinion]
The question presented in this case was whether use and occupancy payments are terminated when the premises are physically vacated and no longer used by the trustee or debtor in-possession, or when the premises are actually surrendered to the landlord.
The proceeding involved a number of landlords' claims, each with identical facts. In each particular case, the bankrupt, the owner of a large department store, during the debtor-in-possession period prior to bankruptcy, physically vacated the premises and subsequently surrendered the premises by mailing a notice of surrender, and in certain cases, the keys, to the landlord.
The landlords asserted that they were entitled to "use and occupancy" as a Chapter XI administration priority for the interval between the bankrupt's vacating and surrendering of the premises.
The court found that the termination of use and occupation occurred when the bankrupt neither used nor physically occupied the premises, and reclassified the landlords' claims to general claims for the interval period.