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ARTICLE · 19 FEBRUARY 2013

Lease Rejection Damages: How To Avoid The Cap (Maybe)

Damages arising from the rejection of a lease by a tenant in bankruptcy are subject to a cap under Section 502(b)(6) of the Bankruptcy Code.

United StatesInsolvency/Bankruptcy/Re-Structuring

In re Energy Conversion Devices, Inc., 483 B.R. 119 (Bankr. E.D. Mich. 2012) –

Damages arising from the rejection of a lease by a tenant in bankruptcy are subject to a cap under Section 502(b)(6) of the Bankruptcy Code. In this case the landlord managed to find a way to characterize part of its claim so that it was not subject to the cap.

Section 502(b)(6) provides that a claim will be disallowed to the extent that:

(6) if such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claim exceeds –

  1. the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of–

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