Court Upholds Force Majeure Defense for Missed Rent
In a decision considered the first of its kind, a court held that government restrictions to combat the spread of COVID-19 “qualify as a force majeure event and represent a valid reason” for non-payment of rent and other contractual obligations, according to an alert by law firm Marks & Klein.
In re Hitz Restaurant Group, the U.S. Bankruptcy Court for the Northern District of Illinois held June 3 that a lease’s force majeure (also known as act of god) clause permitted either party to suspend performance due where they were “prevented or delayed, retarded or ordered by…law, governmental action or inaction, orders of government” and related matters.
“The takeaway here for businesses is that courts are looking at force majeure clauses carefully in light of the COVID-19 pandemic and there may be defenses when and if landlords (or other creditors) begin seeking recovery of unpaid rent,” said the Marks & Klein alert. Attorneys there called the decision “a helpful jumping off point that may prove instructive for businesses who are unsure of their legal obligations or options.”
The case underscores the importance of the exact language in a lease, according to Woods Drinkwater and John Baxter, attorneys at Nelson Mullins Riley & Scarborough.
“If you own a restaurant or represent a restaurant client, force majeure provisions are likely the strongest protection at this time to abate, or otherwise reduce, burdensome rent obligations due to state-mandated closures,” they wrote.
“And as COVID-19 appears to likely remain a critical issue for the foreseeable future, these provisions should be sought by all restaurants seeking to enter into leases.”