UNITED STATES DISTRICT COURT

DISTRICT OF PUERTO RICO 

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of

THE COMMONWEALTH OF PUERTO RICO, et al., 

Debtors.

1

PROMESA 

Title III 

No. 17 BK 3283-LTS 

PONCE REAL ESTATE CORPORATION,

Movant,

v.

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of 

THE COMMONWEALTH OF PUERTO RICO, et al.,

Respondent.

Re: ECF No. 3958

(Jointly Administered) 

OBJECTION TO PONCE REAL ESTATE CORPORATION’S

MOTION REQUESTING ADMINISTRATIVE RENT PAYMENT

 

1 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number and the last four 

(4) digits of each Debtor’s federal tax identification number, as applicable, are the (i) Commonwealth of Puerto 

Rico (Bankruptcy Case No. 17 BK 3283-LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales 

Tax Financing Corporation (“COFINA”) (Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal 

Tax ID: 8474); (iii) Puerto Rico Highways and Transportation Authority (“HTA”) (Bankruptcy Case No. 17 BK 

3567-LTS) (Last Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement System of the Government of 

the Commonwealth of Puerto Rico (“ERS”) (Bankruptcy Case No. 17 BK 3566-LTS) (Last Four Digits of Federal 

Tax ID: 9686); and (v) Puerto Rico Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17 BK 4780-LTS) 

(Last Four Digits of Federal Tax ID: 3747). (Title III case numbers are listed as Bankruptcy Case numbers due to 

software limitations).

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To the Honorable United States District Court Judge Laura Taylor Swain:

The Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), on behalf 

of the Commonwealth of Puerto Rico (the “Debtor”), pursuant to the authority granted to it under 

the Enabling Act of the Fiscal Agency and Financial Advisory Authority, Act 2-2017, respectfully 

submits this objection (the “Objection”) to the Motion for Application Requesting Administrative 

Rent Payment [ECF No. 3958] (the “Motion”) filed by the Ponce Real Estate Corporation (the 

“Movant”).2 The Debtor respectfully requests that the Court deny the Motion for the reasons set 

forth below. 3

OBJECTION

1. On September 21, 2018, Movant filed the Motion requesting that the Court order 

the Debtor to pay $62,190.00 in rent allegedly accrued between the petition date and September 

2018 for space occupied by the State Electoral Commission. Motion ⁋⁋ 1, 4. The Movant’s request 

is based on section 365(d)(3) of the Bankruptcy Code. Motion ⁋⁋ 7-10. 

2. Bankruptcy code section 365(d)(3) provides, in pertinent part:

The trustee shall timely perform all the obligations of the debtor, except those 

specified in section 365(b)(2), arising from and after the order for relief under any 

unexpired lease of nonresidential real property, until such lease is assumed or 

rejected, notwithstanding section 503(b)(1) of this title. . . . 

 

2 The Financial Oversight and Management Board for Puerto Rico, as the Debtors’ representative pursuant to section 

315(b) of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), has authorized 

AAFAF to file this Objection on behalf of the Commonwealth. 

3 The Commonwealth has been attempting and will continue to attempt to consensually resolve the Motion. 

Nevertheless, the Commonwealth is filing this Objection, out of an abundance of caution and to preserve its rights and 

defenses as to the allegations included in the Motion, since no order has been entered granting the Fifth Urgent Motion 

for Extension of Deadlines [ECF No. 4205] requesting additional time to continue to attempt to consensually resolve 

the Motion. The filing of this Objection is without prejudice to any consensual resolution the Commonwealth and 

Movant may be able to reach in the future with regards to the Motion. 

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11 U.S.C. § 365(d)(3) (emphasis added). Accordingly, as all obligations of the debtor come due, 

such as rent payments pursuant to a lease remaining subject to assumption or rejection, the debtor 

shall make good on such payments. See Omni Partners, L.P. v. Pudgie’s Dev. of NY, Inc. (In re 

Pudgie’s Dev. of NY, Inc.), 239 B.R. 688, 695 (S.D.N.Y. 1999).

3. Here, Movant is not entitled to immediate payment of overdue rents. First, Movant 

is not a party to an unexpired lease, as the lease at issue expired on July 31, 2018.4 Section 

365(d)(3) applies to obligations of the debtor arising under unexpired leases. 11 U.S.C. § 

365(d)(3); In re Imperial Bev. Group, LLC, 457 B.R. 490, 503 (Bankr. N.D. Tex. 2011) (“Because 

the Lease expired on February 28, 2011 [post-petition], there was no ‘unexpired lease’ for Imperial 

to assume or reject in accordance with § 365(d)(4).”). 

4. Second, section 365(d)(3) applies to obligations of the debtor arising under 

unexpired leases that can be assumed or rejected, but expired leases, like the one at hand, can no 

longer be either assumed or rejected. 11 U.S.C. § 365(d)(3); Ctys. Contracting & Constr. Co. v.

Constitution Life Ins. Co., 855 F.2d 1054, 1067 (3d Cir. 1988) (“A contract may not be assumed 

under §365 if it has already expired according to its terms.”) (citing 2 COLLIER ON BANKRUPTCY

para. 365.04; In re Anne Cara Oil Co., 32 B.R. 643 (Bankr. D. Mass. 1983)). Accordingly, at best, 

Movant’s claim may be an administrative claim, but the Debtor may delay payment of such claims 

until a plan of adjustment is confirmed under PROMESA. See 11 U.S.C. § 2174; PROMESA § 

314(b)(4) (“The court shall confirm the plan if . . . the plan provides that on the effective date of the 

plan each holder of a claim of a kind specified in 507(a)(2) of title 11, United States Code, will 

receive on account of such claim cash equal to the allowed amount of such claim[.]”). Indeed, courts 

 

4 Under Puerto Rico law, holdover tenancy does not apply to the government, as contracts with the government need 

to be in writing, signed, and registered at the comptroller’s office. See, e.g., Vicar Builders v. ELA, 192 D.P.R. 256 

(2015).

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generally postpone actual payment of administrative expense claims until confirmation of a 

plan. See, e.g., In re Budget Uniform, Inc., 71 B.R. 652, 654 (Bankr. E.D. Pa. 1987) (administrative 

claims “must wait for confirmation of a plan before becoming entitled to payment”); In re 

Continental Airlines, 146 B.R. 520, 531 (Bankr. Del. 1992) (“Most courts postpone actual payment 

[of administrative claims] until confirmation of a plan.” (citations omitted)); In re Global Home 

Prods., LLC, 2006 Bankr. LEXIS 3608, at *15-16 (Bankr. D. Del. Dec. 21, 2006) (denying 

immediate payment of administrative claim).

5. Third, even if section 365(d)(3) applied, Movant has waited over a year to file its 

motion for payment of rent under section 365(d)(3), and now seeks immediate payment of the 

entirety of its overdue rent. Yet, there is a difference between a right to prompt payment (as 

indicated by the word “timely” in section 365(d)(3)), and a claim for accrued but unpaid rents. See 

In re Pudgie’s Dev. of N.Y., 223 B.R. 421, 427 (Bankr. S.D.N.Y. 1998). As the Court in In re R.H. 

Macy & Co., observed: “Congress chose to use the word ‘obligation’ rather than the word ‘claim’ 

... Congress certainly knew how to use the word claim, and could have used it in section 365(d)(3).” 

152 B.R. 869, 873 (Bankr. S.D.N.Y. 1993). The import of this distinction is that “the debtor-tenant 

has an obligation to continue paying its lease obligations. But a landlord cannot wait while unpaid 

rent accrues in hope that his later claim for lease payments will be given superpriority over secured 

creditors that have specific statutory priority.” In re Pudgie’s Dev. of N.Y., 239 B.R. at 695.

6. If requests like Movant’s were granted, a party who slept on its rights to timely 

payment would be rewarded for doing so. Congress intended to provide greater protection to 

nonresidential real property landlords by requiring timely payments of lease obligations, but not 

to create a special category of higher priority claims for lessors. In re Trak Auto Corp., 277 B.R. 

655, 668 (Bankr. E.D. Va. 2002). One court explained the purpose of section 365(d)(3) as follows:

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Section 365(d)(3) advances the landlord to the head of the line for current payment 

of ongoing expenses in recognition of his unique, involuntary creditor status. And, 

as with other post-petition payments essential for the continued operation of the 

debtor's business, such as for supplies, utilities, employee wages and the like, these 

payments are not subject to recapture. But once the landlord allows his right to 

timely payment to lapse into an accrued liability for unpaid rents, Section 365(d)(3) 

becomes irrelevant. The accrued liability for rents is no more than the landlord's 

lapsed right. A claim comes into existence on the basis of that accrued liability, but 

Section 365(d)(3) does not purport to establish claim priority. The statute does not 

allow the landlord to permit his right to lapse into a claim for accrued amounts, and 

later attempt to assert the claim on a superpriority basis ahead of other 

administrative or superpriority creditors.

In re Pudgie’s Dev. of NY, 223 B.R. at 427.

7. Accordingly, even if section 365(d)(3) applied, the remedy for untimely 

performance by the Debtors is not super-priority for the landlord, but, at best, an administrative 

expense with the same priority as administrative expenses under section 507(a). See, e.g., In re 

Virginia Packaging Supply Co., 122 B.R. 491, 494–95 (Bankr. E.D. Va. 1990); In re Pudgie’s 

Dev., Inc., 239 B.R. at 695-98; see also Yomayra Santiago Velez v. Jorge A. Perez Leon, Noreen 

Wiscovitch Rentas (In re Perez Leon), No. 12-01251 ESL, 2013 WL 5232331, at *10 (Bankr. 

D.P.R. Sept. 16, 2013) (“The Bankruptcy Court cannot reorder the priority scheme established for 

claims by Congress.”) (internal citations omitted).

WHEREFORE, the Debtor respectfully requests the Court deny the Motion. 

Dated: November 12, 2018 

San Juan, Puerto Rico 

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Respectfully submitted, 

/s/ Luis C. Marini-Biaggi

Luis C. Marini-Biaggi

USDC No. 222301 

Email: lmarini@mpmlawpr.com

/s/ Carolina Velaz-Rivero

Carolina Velaz-Rivero

USDC No. 300913

Email: cvelaz@mpmlawpr.com

MARINI PIETRANTONI MUÑIZ LLC

MCS Plaza, Suite 500

255 Ponce de León Ave.

San Juan, Puerto Rico 00917

Tel: (787) 705-2171

Fax: (787) 936-7494

Attorneys for the Puerto Rico Fiscal 

Agency and Financial Advisory Authority

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