BAP Upholds Bankruptcy Court Decision to Reject a Lease Retroactively Where Subtenant Had Not Vacated Premises

In an unpublished opinion filed on May 30, 2014 in the case of Boyle Avenue Properties v. New Meatco Provisions, LLC, et. al., the Ninth Circuit BAP upheld the Bankruptcy Court's decision and found that a lease could be rejected retroactively to the date of the filing of the motion to reject the lease instead of the date of entry of an order rejecting the lease, even where the leased space had not been vacated by the debtor's subtenant. The Bankruptcy Court found that the Debtor met the 4 part test for "exceptional circumstances" as set forth in In re At Home Corp., 392 F.3d 1064 (9th Cir. 2004) to allow retroactive rejection of a lease. The Bankruptcy Court focused on the third factor of whether a debtor has vacated the premises or is receiving a benefit from the premises in meeting the "exceptional circumstances" test. In cases where the debtor's subtenant had not vacated the premises and was past due on rent, the Bankruptcy Court found, and the BAP affirmed, that because the debtor had vacated and because the subtenant was not paying rent, the debtor was not receiving a benefit from the premises. Therefore, the lease could be rejected retroactively to the date of the filing of the motion to reject the lease.

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