‘Act of God’ Legal Theory Allows Restaurant Rent Relief During Coronavirus Restrictions, Bankruptcy Court Rules
A bankruptcy court in Illinois has ruled that the force majeure provision in a restaurant lease excuses the tenant’s obligation to pay full rent during the time a stay-at-home order was implemented to slow the spread of COVID-19, the Wall Street Journal reported. The ruling appears to be the first of its kind after widespread closures triggered dozens of lawsuits across the country over missed rent payments. The legal concept was raised by tenants seeking rent relief after local health and government officials mandated the temporary closure of nonessential businesses and “on-premises” consumption of food and drinks. In Chicago, an Italian restaurant filed for bankruptcy protection in February and didn’t pay its rent from February to June. Its landlord, Kass Management Services Inc., sought to compel Giglio’s State Street Tavern to pay its rent from March to June or to vacate the premises unless rents are paid, according to filings at the U.S. Bankruptcy Court of the Northern District of Illinois. Bankruptcy Judge Donald R. Cassling ruled that the restaurant has to pay its March rent in full, but noted that the executive order by Illinois Governor J.B. Pritzker on March 16 suspending food consumption on-premises in restaurants, is grounds for force majeure for the other months. The order hindered the restaurant’s ability to perform by prohibiting on-premises consumption of food and drinks and restricted its business to takeout, curbside pickup and delivery, he added. These restrictions hurt the restaurant’s ability to generate revenue and pay rent. That said, the tenant “is not off the hook entirely,” said Judge Cassling. Given that the restaurant can still offer takeout, curbside pickup and delivery services, it should pay a reduced rent “in proportion to its reduced ability to generate revenue due to the executive order.”
Based on the restaurant’s estimate that 75% of its premises was rendered unusable by the executive order, the judge ruled that the tenant should pay 25% of the rent from April to June, and that monthly rents are likely to increase as restrictions are gradually lifted.
“I think it’s a good and fair ruling if the playing field is fair,” said Bobby Hitz, owner of Giglio’s State Street Tavern. He said he hasn’t been able to open his restaurant for takeout or delivery during this period because the costs of running limited operations will still exceed the revenue from such sales. “I just want to sell food and make people happy.”
Kass Management didn’t respond to a request for comment.
While this ruling isn’t binding on other courts, it may have an impact on other cases as state courts often look to federal courts, lawyers said.← News & Insights