May Restaurants Rely on Force Majeure Clause to Abate Rent in the Wake of COVID-19 Closures? One Court Rules Yes

2 min

The Wall Street Journal reported yesterday on a recent Illinois bankruptcy court ruling that a Chicago restaurant could use the force majeure clause in a restaurant lease to abate some of the rent due in the wake of the COVID-19 pandemic. On March 16, 2020, Illinois Governor Pritzker issued an executive order "suspending food consumption in restaurants." The court ruled that while the restaurant was obligated to pay the full rent due for March, it could pay a reduced monthly rent — an abatement — to the tune of a 75% reduction as a result of the executive order's restrictions placed on restaurants to offer only delivery and curbside pickup during the affected months.

This abatement is not at all surprising, given our consistent observations that courts will be looking to "split the baby" on who bears the brunt of economic impact to parties subject to business agreements affected by the COVID-19 government and travel restrictions. Bankruptcy courts typically have latitude to do what is "equitable" in terms of existing contractual arrangements, but this decision may offer some guidance to both commercial tenants and landlords who are facing the "new normal" of reduced occupancy restrictions and outright prohibitions on certain activities that were contemplated by parties entering into leases or other commercial agreements prior to March 2020.

Tenants and landlords alike should take heed of this type of outcome as they negotiate around the COVID-19 disruptions.

Click here to learn more about other force majeure cases related to the COVID-19.