Bankruptcy Court Grants Tenant Partial Relief Pursuant to Lease’s Force Majeure Clause

As I previously wrote about here, commercial real estate litigation is bound to increase, and courts will be forced to interpret tenants’ force majeure, impossibility and frustration arguments.

In a recent case from the Bankruptcy Court for the Northern District of Illinois, found here, the court addressed the tenant’s argument for relief under the lease’s force majeure clause.  The tenant is a restaurant in bankruptcy (the rent is post-petition rent due under 11 U.S.C. § 365(d)(3)) that sought rent relief after the Illinois Governor’s shutdown order. As in Maryland, the order only shut down on-premises consumption and left open carry-out and delivery.

The force majeure clause in that case excused the tenant from performing its obligations “but only so long as the performance of any of its obligations are prevented or delayed … by … laws, governmental action or inaction, orders of government….”  The court ruled that the Governor's order suspending on-site operations prevented the tenant from partially performing under the lease and was “unquestionably the proximate cause of Debtor’s inability to pay rent …” Based on the tenant’s admission that 25% of the restaurant square footage could have been used for carry-out, the court ruled that the tenant was obligated to pay 25% of the post-petition rent and common area maintenance charges.

The court gave little time to the landlord’s arguments that the force majeure clause only excused performance of the tenant’s obligations – its obligation being the requirement to pay rent not its ability to operate as a restaurant.  While the landlord argued that the tenant could still pay rent while the order was in effect, the court took a more expansive view of the clause: “[The order] unquestionably ‘hindered’ Debtor’s ability to perform by prohibiting Debtor from offering ‘on-premises’ consumption of food and beverages.”

Hindsight is 20/20, but the lease could have more clearly differentiated between the tenant’s obligations (to pay rent and CAM charges) and the tenant’s intended performance under the lease (to operate as a restaurant) - and which was intended to invoke the lease’s force majeure clause.