NJ Ruling Sheds Light On When 'Stub Rent' Must Be Paid - Article Summary

Oct 22, 2026

Uploaded by Liam

NJ Ruling Sheds Light On When 'Stub Rent' Must Be Paid addresses how stub rent—rent accruing for occupancy between a bankruptcy petition date and the first post-petition rent payment—should be handled in Chapter 11 cases. A Jan. 3 decision in In re: New Rite Aid LLC, in the U.S. Bankruptcy Court for the District of New Jersey, affirms that landlords may seek stub rent as an administrative expense under Section 503(b)(1). It explains timing consequences for debtors and contrasts billing-date versus proration approaches across circuits.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages5

Reading Time13 min

AccessFree to download

Background

Definition of “stub rent”

Governing Bankruptcy Code Provisions

Section 365(d)(3)

Section 503(b)(1)

Circuit Approaches to Stub Rent Timing

Billing-date approach

Proration approach

Practical Implications for Debtors and Landlords

Timing and payment windows

Administrative expense burden

NJ Ruling Sheds Light On When 'Stub Rent' Must Be Paid By Daniel Reynolds, Luke Barefoot and David Schwartz (January 21, 2026) A Nov. 3 decision in In re: New Rite Aid LLC in the U.S. Bankruptcy Court for the District of New Jersey affirms, at least in the Third Circuit, that landlords may seek to have so-called stub rent treated as an administrative expense under Section 503(b)(1) of the Bankruptcy Code. As a result, stub rent need not be paid immediately; debtor-tenants may wait until the time of plan consummation to pay. Although consistent with prior Third Circuit precedent on the treatment of stub rent, it is one of the first written decisions to directly address the issue of exactly when stub rent must be paid. Given that timing of payments by a debtor — and, conversely, receipt of payment by the landlord — can be critical, this decision is more important than it may first appear. The decision highlights critical considerations that debtors should bear in mind if they have significant leases that they may reject, and could affect debtors' considerations of when and where to file for bankruptcy. Particularly as certain industries — notably, artificial intelligence companies with data center leases, as well as more traditional retail businesses with large retail footprints — have begun to lease significant amounts of real property as a strategy for growth and balance sheet management, these considerations will become important in times of future distress. Background Daniel Reynolds Luke Barefoot "Stub rent" refers to the amount due to a landlord for the period of occupancy between a debtor's bankruptcy petition date and the first post-petition rent payment. This arises when a debtor files for bankruptcy in the middle of arent period and continues occupying the leased premises after filing for bankruptcy, without having paid rent for that period yet. For example, if a debtor files for bankruptcy on Jan. 15 and the next rent payment is due Feb. 1, the stub rent period would run from that date through the end of the applicable lease period on Jan. 31. Sections 365 and 503 of the Bankruptcy Code govern the treatment of stub rent. Section 365(d)(3) requires a debtor or trustee to "timely perform all the obligations of the debtor ... arising from and after" the petition date "under any unexpired lease of nonresidential property, until such lease is assumed or rejected. " Section 503(b)(1) allows administrative expense claims for "actual, necessary costs and expenses of preserving the estate. " David Schwartz Courts are split on how to treat stub rent obligations, depending on how they view when the obligation to pay rent "arises" and, as a consequence, when such rent must be paid. Billing-Date Approach Courts in the Third, Sixth, Seventh and Eighth Circuits look to the lease and hold that rent arises on the day that rent is due, i.e., the "billing-date approach", including e.g., the U.S. Court of Appeals for the Third Circuit's 2001 decision in In re: Montgomery Ward Holding Corp.; the U.S. Court of Appeals for the Sixth Circuit's 2000 decision in In re: Koenig Sporting Goods Inc.; the U.S. Court of Appeals for the Seventh Circuit's 2003 decision in Ha-Lo Industries v. Centerpoint Properties Trust; and the U.S. Court of Appeals for the Eighth Circuit's 2009 decision in Burival v. Creditor Committee, aka In re: Burival. Under the billing-date approach, a debtor who filed on Jan. 15 with a lease that provided for rent payment on the first of the month would not be obligated to pay for the stub rent period within the 60-day period under Section 365(d)(3) . Instead, landlords are entitled to have their stub rent claim for the remainder of the month treated as an administrative expense claim under Section 503(b)(1) . Proration Approach While not uniformly adopted, courts in the Second,[1] Fourth and Ninth Circuits have held that rent accrues each day the tenant occupies the leased premises,

FAQs

What is “stub rent” in bankruptcy lease situations?

Stub rent is the rent due for the occupancy period between the bankruptcy petition date and the first rent payment after the petition. It arises when the debtor continues occupying the leased premises without yet paying rent for that interval.

How did the court treat stub rent in In re: New Rite Aid LLC?

The decision affirms that, at least within the Third Circuit, landlords may seek to treat stub rent as an administrative expense under Section 503(b)(1) of the Bankruptcy Code.

What is the key difference between the billing-date and proration approaches?

Under the billing-date approach, rent is treated as arising on the day it is due, which can shift stub rent into administrative expense treatment rather than requiring payment within the Section 365(d)(3) window. Under the proration approach, rent accrues daily with occupancy, requiring timely payment for each day in the stub rent period in those circuits.

Oct 22, 2026

Uploaded by Liam