An Illinois bankruptcy court was the first court in the country to issue an opinion on how a force majeure clause in a commercial lease would be applied to the COVID-19 pandemic. Not surprisingly, the language of the underlying force majeure clause and the Illinois’ Governor’s executive order played critical roles in the court’s analysis. As it turned out, take-out food saved the contract.
The case involved a restaurant that had filed for bankruptcy after the Illinois’ Governor issued an executive order limiting the operation of its businesses due to COVID-19. The landlord sued the restaurant for back rent and the restaurant argued that that the force majeure clause, triggered by the executive order, excused it from paying rent.
The court analyzed both the executive order and underlying lease. The executive order provided that
restaurants must “suspend service for and may not permit on premises consumption” but still “permitted and encouraged” restaurants “to serve food and beverages so that they may be consumed off-premises.”
The lease’s force majeure clause excuses nonperformance when
performance was “delayed, retarded or hindered by . . . laws, governmental action or inaction, orders of government”.
The court found it significant that the executive order allowed restaurants to continue take-out service. Because the restaurant could continue to provide take-out, the force majeure clause did not bar its obligation to pay rent. The court then fashioned its own remedy, requiring the restaurant to pay 25% of its rent.
Courts will be wrestling with impact of COVID-19 for years to come. And while take-out food might not save your contract, a close review of your force majeure clause and any underlying executive orders will be critical to your claim.