Cure Claim Allowed Only For Such Repairs As Are Necessary To Permit Landlord's Premises To Be Used For A Specific Purpose
In re Fleming Cos., Inc., Case No. 03-10945 (MFW), 2006 WL 2320974 (Bankr. D. Del. Aug. 9, 2006) (Judge Mary F. Walrath)
Where the Debtor assumed and assigned a lease of non-residential real property to a third-party, and the property was in deplorable condition at the time of assumption, under Wisconsin law, the landlord could recover the amount necessary to restore the property to its particular purpose as a grocery store as “cure” pursuant to sections 365 and 503(b).
Landlord, DDB Limited Partnership, leased premises in Wisconsin at which the Debtor, Fleming, operated a grocery store. During the course of the bankruptcy, Fleming filed a motion to assume and assign the lease, and represented that no cure amount was due to DDB. DDB objected, asserting a cure claim of $750,000. DDB then filed a motion to compel allowance and payment of the cure claim, and the Post Confirmation Trust (the “PCT”), objected. The Court required Fleming to escrow $550,000 pending determination of the cure claim.
The PCT argued that because Fleming had actually been operating a grocery store at the time the lease was assumed, that constituted proof that no repairs were necessary. However, based upon evidence presented, the Court held that the premises were in a deplorable condition when the lease was assumed. Indeed, the PCT’s own witness conceded that the premises were in a terrible condition and that at least $132,000 in repairs were necessary to return them to “acceptable” condition. The Court reviewed all the repairs for which DDB sought reimbursement to determine whether they were necessary for the operation of a grocery store, or were instead to renovate for a new tenant.
Reviewing applicable Wisconsin law, the Court concluded that Fleming was under a “minimal duty . . . to undertake repairs . . . to keep the premises in such condition that [the tenant] can use them for the purposes for which they are leased.” In reviewing the necessity of the repairs made by DDB and sought as “cure,” the Court concluded that claims for repairs to inoperable bathrooms, inoperable automatic, warehouse, and entrance doors, caved-in loading dock areas, cart corrals and the parking lot, structural issues with the building, gas pumps and painting, as well as repair to two furnaces, the roof, fryer exhaust, countertops, and damage to cafeteria walls were permitted. The Court declined to award expenses for ceiling tiles that were covered in grease and sagging, and that apparently needed replacement, holding they were merely cosmetic. Likewise, where areas of the walls were water damaged, covered in grease and “in deplorable condition,” the Court held nonetheless that such damages were cosmetic and did not prevent the premises from serving as a grocery store. The Court also declined to award expenses for repairs to lighting, signage, floor tiles and carpeting, and cooler weather-stripping as well as for general cleaning, as it found that such items were not necessary to the operation of the grocery store.
