I am seeing many unique ways that the force majeure clause is being applied and ruled upon by the courts. The following is one of those more interesting cases I have come across.
On June 3rd, the United States Bankruptcy Court for the Northern District of Illinois issued a ruling in favor of Hitz Restaurant Group which may have far-reaching consequences for indebted tenants who have struggled to pay rent in the wake of government-issued shutdowns. Hitz Restaurant Group, which had owed its creditor, Kass Management Services, 3 months of rental payments, argued that the force majeure clause in their contract protected the tenant from meeting their obligations.
A force majeure clause essentially protects either party from fulfilling the obligations set out in their shared contract in the event of an unexpected natural hazard. Citation of the clause is typically reserved for natural disasters outside of the control of either party, often referred to as an act of God. The effectiveness of claiming force majeure due to business loss triggered by a government shutdown has remained unclear since the beginning of the COVID-19 pandemic in the United States.
Hitz Restaurant Group argued that their force majeure clause came into effect on March 16, 2020, the day Illinois Governor J. B. Pritzker issued an executive order stating: “…all businesses in the State of Illinois that offer food or beverages for on-premises consumption— including restaurants, bars, grocery stores, and food halls—must suspend service for and may not permit on-premises consumption…”
Finding that Kass Management Services failed to properly argue against Hitz Restaurant Group’s claims, the court ultimately ruled in favor of the tenant, albeit conditionally. Citing that Governor Pritzker’s order allowed for Illinois restaurants to provide takeout services and curbside pickup, Judge Donald R. Cassing determined that Hitz Restaurant Group still owed 25% percent of missing rent to Kass Management for the months of March, April, and June.
Considering the unique specifications of Judge Cassing’s ruling, I’d advise that both property owners and tenants study this case carefully before taking their claims to court.
Please contact me should you need a review of any of your contracts before a dispute like this arises.
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