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Bankruptcy Court: Force Majeure Clause Partially Excuses Illinois Restaurant's Rent Obligations During COVID Shutdown

June 2020


On June 3, 2020, the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, issued a decision regarding the application of a force majeure provision in a restaurant lease with respect to the COVID shutdown.  The debtor-tenant -- an Illinois restaurant -- claimed that its duty to pay rent was excused by the lease’s force majeure clause, which states as follows:

"Landlord and Tenant shall each be excused from performing its obligations or undertakings provided in this Lease, in the event, but only so long as the performance of any of its obligations are prevented or delayed, retarded or hindered by...laws, governmental action or inaction, orders of government...Lack of money shall not be grounds for Force Majeure."

The tenant argued that the force majeure provision was triggered by Illinois Governor Pritzker's March 16th Executive Order, which suspended the business operations of Illinois restaurants, other than carry-out and delivery services.

The court agreed, stating that under Illinois law, the force majeure provision partially excused the tenant from paying rent during the shutdown, even though the provision specifies that "lack of money" is not a basis for force majeure.  On the latter point, the court indicated that the "lack of money" carve-out was inapplicable, because the tenant's inability to pay rent was due to a governmental action.

Since the shutdown order allows restaurants to provide carry-out and delivery services, the court determined the tenant's rent obligation was only partially excused, "in proportion to its reduced ability to generate revenue due to the [shutdown] order."  In particular, the court decided that because the tenant could use approximately 25% of the restaurant's square footage while the shutdown order was in effect, tenant must pay 25% of its April, May, and June rent.

Here is a link to the court decision.  Since it's a decision by a federal bankruptcy court interpreting Illinois law, it's not binding on Illinois courts (or the courts of other states, for that matter).  Also, it may be overturned on appeal.  In addition, we would point out that the force majeure provision at issue is somewhat unusual, in that it excuses the performance of lease obligations during a force majeure period, as opposed to simply delaying the performance of such obligations, as is typically the case.  Each contract is different and the law of this case must be read in the context of the specific contractual provisions you may have.  Nevertheless, we would expect that Illinois courts (and perhaps courts in other states) will at least take it into consideration in other COVID-related cases where a tenant is seeking rent relief based on a force majeure provision.  P&H will continue to monitor cases interpreting the force majeure provisions in the context of tenant claims for rent relief due to the pandemic.

If you have any questions related to this legislation, please contact your attorney at Pedersen & Houpt or the attorneys below and we will answer your questions.

Larry Byrne  
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2155
lbyrne@pedersenhoupt.com

Eric J. Kordish
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2249
ekordish@pedersenhoupt.com

Matthew J. Schmidt
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2281
mschmidt@pedersenhoupt.com

David A. Martin
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2286
dmartin@pedersenhoupt.com