Federal Bankruptcy Court Rules Gov. Pritzker’s Executive Order Triggered Lease’s “Force Majeure” Provision

Last week, a Chicago-based federal bankruptcy judge ruled that Gov. Pritzker’s Executive Order addressing the COVID-19 pandemic triggered a lease’s “force majeure” provision entitling a tenant to a rent reduction. The court in In re: Hitz Restaurant Group, held the Executive Order’s ban on offering food or beverages for on-premises consumption hindered the Hitz Restaurant Group’s ability to operate normally and, consequently, to meet its obligation to pay rent. The lease provision specifically excused the payment of rent when the tenant’s “performance of its obligations are prevented or delayed … or hindered by. . . laws, governmental action or inaction, orders of government….”

The federal bankruptcy court considered the issue a matter of contract interpretation under Illinois law, which provides that “a force majeure clause will only excuse contractual performance if the triggering event cited by the nonperforming party was in fact the proximate cause of that party’s nonperformance.” Id. (citing Northern Ill. Gas Co. v. Energy Co-op., Inc., 461 N.E.2d 1049, 1058 (Ill. App. Ct. 1984)).

The court concluded that Gov. Pritzker’s Executive Order operated only to reduce the restaurant group’s obligation to pay rent, as opposed to excusing it from its rent obligations entirely. The court reasoned that the Executive Order allowed and encouraged restaurants to continue providing carry-out, curbside pick-up, and delivery services. Accordingly, the court held that the restaurant group’s obligation to pay rent should be reduced only in proportion to its reduced ability to generate revenue as a consequence of the Executive Order prohibiting food and beverage services for on-premises consumption. 

Landlords and tenants, whether commercial or residential, should take note of the Hitz Restaurant decision and its potential impact on their own lease obligations. We are committed to assisting our clients during this difficult time. If you have any questions, please contact Norm Finkel or Matt Tyrrell.

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