Illinois Court Holds that Force Majeure Clause Excuses Restaurant from Full Rental Payments During COVID-19 Restrictions
David A. Polsinelli, Crain Caton & James P.C.
Earlier this month, a federal court in Illinois was one of the first to address whether a business impacted by COVID-19 restrictions is still obligated to make full rental payments.
The business involved was a restaurant that was prohibited, like many others in the country, from offering on-premises consumption to its customers. This prohibition came in the form of an Illinois executive order that went into effect on March 16, 2020. The court was asked to decide whether this executive order excused the restaurant from making its full rental payments for March through June of this year.
Because the March rent was due before the executive order took effect, the court found that the restaurant was still responsible for the full amount.
However, for the months of April through June, the court found that the restaurant was excused from paying full rent. The court stated that an evidentiary hearing would be required to determine the exact amount owed, but based on the restaurant’s concession about how much of the space it was able to use, the court opined that the rent would be at least 25% of the normal amount.
To reach its decision, the court relied on a force majeure clause in the restaurant’s lease agreement, which provides in pertinent part:
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 court found this clause applicable for three primary reasons:
First, the court found that the Illinois executive order constituted both “governmental action” and issuance of an “order.”
Second, the court held that the order and its extensions unquestionably “hindered” the restaurant’s ability to perform because its business was prohibited from operating normally, as it was limited to take-out, curbside pickup, and delivery.
Finally, the court determined that the exception for “lack of money” did not apply because it found that the proximate cause of the restaurant’s inability to pay rent was the executive order—not a lack of money. The court reasoned that the executive order hindered the restaurant’s ability to generate revenue and pay rent. In other words, the court appears to draw a distinction between a “lack of money” and “lack of revenue.”
Although this opinion was based on a particular force majeure clause, the language of which can vary widely across different leases, the court’s analysis is certain to attract the attention of other courts across the country, as judicial guidance is very limited when it comes to these types of pandemic-related disputes.
The court’s full opinion can be accessed here: https://www.govinfo.gov/content/pkg/USCOURTS-ilnb-1_20-bk-05012/pdf/USCOURTS-ilnb-1_20-bk-05012-0.pdf
About the Author:
David A. Polsinelli focuses his practice on commercial litigation at both the trial and appellate levels. He regularly handles disputes involving contracts, construction, and real property. Dave has worked on several appeals and jury trials with successful results. Most recently, Dave has advised clients on matters related to the pandemic. Dave was chosen to be on the Texas Super Lawyers – Rising Stars 2019 and 2020 Lists (Thomson Reuters).
Feel free to contact Dave at firstname.lastname@example.org or 713.752.8664.