BANKRUPTCY; LEASES: "RENT RESERVED"; DAMAGES: A lessor may recover from a debtor lessee as "rent reserved" all charges that are (1) designated as "rent" in the lease, (2) related to the value of the property or the lease and (3) classifiable as rent as regular or periodic charge. In re McSheridan, 95 C.D.O.S. 5880 (9th Cir. BAP, 1995).

Bankruptcy Code section 502(b)(6) limits a landlord's claim for damages stemming from rejection of a lease in bankruptcy. Where lessees enter into a triple net lease, requiring them to make other payments in exchange for reduced rent such as taxes and assessments, maintenance and repairs, insurance premiums, and utilities, such costs may be rent allowable under the "rent reserved" provision of section 502(b)(6)(A).

Bankruptcy courts must make independent determinations of what constitutes "rent reserved" despite any labels in the lease. For a charge under a lease to be considered "rent reserved," it must meet a three-part test. The charge must be (1) designated as rent or additional rent in the lease or be provided as the tenant's obligation in the lease; (2) related to the value of the property or the lease thereon; and (3) properly classifiable as rent because it is a fixed regular or periodic charge.

Comment: Despite the court's statement that the "label" in the lease will not control, clearly there are many lessons here for landlords in the drafting of their leases. Both cost recovery and profit items should be structured in such a way to easily meet the test of "rent." It shouldn't be too hard, in much cases, but occasional "extras" may require the master's touch to turn from "general creditor" lead into "priority expense" gold.

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