K-4, Inc. v. Midway Engineered Wood Products, Inc. (In re Treesource Industries, Inc.)

We must decide whether obligations under the terms of a lease on commercial property to remove a concrete slab and restore the premises to them pre-lease condition arose prior to the trustee’s rejection of the lease, and thus should be treated as an administrative expense claim, or upon rejection such that the lessor’s claims for damages are unsecured.

K-4, Inc. and Midway Engineered Wood Products, Inc. (Midway) were parties to a nonresidential real property lease. Midway was one of the debtors in the administratively consolidated Chapter 11 bankruptcy cases of TreeSource Industries, Inc. (TreeSource). K-4 requested allowance and payment of an administrative expense claim under 11 U.S.C. § 365 (d)(3) for Midway’s failure to remove a concrete slab and restore the premises according to the terms of the lease. The bankruptcy court denied the request, and the district court affirmed, holding that Midway’s obligations did not arise until the lease was rejected.

K-4 appeals, arguing that the obligation instead arose during the bankruptcy case (post-petition), and before rejection (pre-rejection), thereby entitling it to an administrative expense claim. We agree *996 with the district…