Lease Termination Ruling Reshapes Bankruptcy Claims

Federal Rules Come First

In In re Herritt, the court ruled that a lease can be “terminated” or “surrendered” under the Bankruptcy Code even if those actions don’t meet state law requirements. This decision affects how much a landlord can claim in a tenant’s bankruptcy, reports Reuters.

The case involved a commercial restaurant lease in Boston. The tenants, Scott Herritt and Mabrothers, LLC, stopped paying rent during the pandemic. In response, the landlord sent a default notice, and later, a formal lease termination letter.

Mabrothers filed for Chapter 7 bankruptcy, and the landlord received a settlement. Separately, Herritt filed for Chapter 13. The landlord then claimed unpaid rent and charges from the time rent stopped until the lease’s original end date.

However, Herritt challenged the claim. He argued that Section 502(b)(6) limited how much the landlord could collect, depending on when the lease ended and when the property was surrendered.

What Section 502(b)(6) Says

This section of the Bankruptcy Code limits a landlord’s claim for unpaid rent when a lease ends. It caps the claim at the greater of:

• One year of unpaid rent, or
• 15% of the remaining rent due (up to a maximum of three years),

plus any rent due before the lease ended or the tenant gave up the space.

The goal is to prevent landlords from claiming too much and to make sure other creditors also get a fair share.

Key Questions: When Did the Lease End and Was the Space Surrendered

The court had to decide two things:

1. When did the lease end?
2. When did the tenant give up the space?

The landlord said the lease only ended once it followed all the steps required by state law. Under this view, rent would keep adding up until the lease was formally terminated.

Herritt disagreed. He argued that bankruptcy law allows for a broader view of termination. He pointed to the purpose of Section 502(b)(6), which aims to stop landlords from inflating claims.

The court agreed with Herritt. It found that the landlord’s argument conflicted with the goals of bankruptcy law. If landlords could delay termination, they could increase their claims unfairly.

Instead, the court said that a lease can be “terminated” under the Bankruptcy Code as soon as the landlord regains control of the space—even if state law formalities haven’t been met. In this case, the court said the landlord’s termination notice was enough.

What Counts as “Surrender”

Next, the court looked at whether the tenant had surrendered the leased property. This issue matters because the amount of the capped claim depends on the date of surrender or repossession. The issue of surrender has gained broader attention as office tenants increasingly give up space due to refinancing pressures.

The court said that surrender doesn’t require formal steps under state law. Clear actions—like giving back keys, walking away from the space, or reaching an agreement—can all show surrender.

However, the court didn’t find enough evidence to decide the exact date in this case. It asked for more proof before making a final ruling.

Why This Matters

The Herritt ruling shows that courts may look past state law when applying bankruptcy rules. It reinforces that Section 502(b)(6) aims to balance landlord rights with fair treatment for all creditors.

Landlords should keep this in mind when dealing with bankrupt tenants. Delays in formal termination or rejection might not protect larger claims.

Looking Ahead

More courts are likely to follow this reasoning. As commercial tenants continue to struggle post-pandemic, lease disputes in bankruptcy cases will remain common.

This case is a reminder: in bankruptcy, timing and legal definitions can affect how much landlords can recover—and when.