Tenant Insolvency: Occupation Rent

Occupation rent is payable for the time the Trustee actually occupies the premises.  If the Trustee does not actually occupy the premises it is not liable for occupation rent.  The question then becomes: When is the Trustee actually in occupation?

The Courts have found that the Trustee must actually be in occupation in order for occupation rent to be payable.  The following acts have been held to be relevant in determining if the Trustee was in occupation:

  • Changing the locks;
  • Keeping the assets of the bankrupt estate on the premises;
  • Bringing prospective purchasers to the premises;
  • Employing persons to perform maintenance work on the premises; and
  • Employing persons to take inventory on the premises

The Courts have found that by performing any or all of the above acts, the Trustee is occupying the premises for occupation rent purposes.  Accordingly, the Trustee does not need to operate the bankrupt’s business or equipment to be liable for occupation rent.

The obligation for occupation rent is for the period of time during which the Trustee actually remains in possession of the leased premises.  This is usually calculated on a per diem basis. The obligation for occupation rent is a personal obligation of the Trustee notwithstanding that the CTA restricts the Trustee’s liability for occupation rent to the value of the assets of the debtor on the premises.  However, the Trustee is indemnified out of the assets of the estate for these charges.  The Trustee should be prudent that the value of the assets is sufficient to cover all estate costs including occupation rent.

For additional clarification, please contact a Bankruptcy Trustee at Boale, Wood and Company.

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