Force Majeure Clause Hitz the Spot for Restaurant Tenant
By: SAM DEBALTZO, DANNY NEWMAN
In previous updates here, here, and here, Tonkon Torp attorneys have addressed the applicability of Force Majeure clauses in commercial contracts. As expected, commercial renters are taking a beating, and many have been forced to close as a result of the pandemic.
Unsurprisingly, the issue of force majeure clauses in light of COVID-19 has already reached the courts. A U.S. bankruptcy court for the Northern District of Illinois recently held in In re Hitz Restaurant Group that an executive order in the State of Illinois limiting restaurants to carry-out or delivery triggered the force majeure clause in the restaurant-tenant’s lease. The court noted the language from the lease which specifically excused lease obligations in the event performance was “delayed, retarded or hindered by...laws, governmental action or inaction, orders of government.” Given that the tenant could not use its dining area and was limited to carryout, curbside pickup, and delivery purposes out of its kitchen – about 25% of the premises – the tenant was required to pay only 25% of the rent for the periods during which restrictions applied. Notably, the court had wanted to reduce the amount of rent owed by the amount of revenue lost since the executive order was issued, but the parties failed to provide that information to the court.
This case is not binding in Oregon, and force majeure clauses vary significantly from lease to lease. However, commercial tenants may take some courage from this decision, and landlords may use it to determine their risk and shape their strategies for dealing with tenants—most specifically restaurant tenants. Oregon’s limitations on dining in are finally being lifted slowly, and may in fact be stalled, but many commercial tenants likely took advantage of the ban on eviction for non-payment of rent and may hope to be excused from certain missed payments. Cases like In re Hitz Restaurant Group are bound to arise, and it will be interesting to see how Oregon courts rule.