Covid “Stay at Home” Order Triggers Force Majeure Clause in Restaurant Lease

By: Joseph A. DiOrio

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff


In In re Hitz Restaurant Group, a bankruptcy court in the Northern District of Illinois held that a government “stay at home” order triggered a force majeure clause in a restaurant lease.[1] On March 16, 2019, Illinois Governor J. B. Pritzker addressed the Covid-19 pandemic in Illinois by issuing an executive order suspending all on-premises consumption of food in restaurants.[2] Prior to the pandemic, on February 24, 2020, Hitz Restaurant Group (the “Debtor”) filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”).[3] As a debtor in possession, the Debtor was generally required to make rent payments under the Bankruptcy Code §365(d).  However, the “stay at home” order resulted in the Debtor’s revenue decreasing, which caused the debtor to refrain from paying rent for the months of March, April, May, and June 2020, to Kass Management Services, Inc (“Landlord”).[4]

The Landlord filed a motion for an order compelling the Debtor to pay post-petition rent.[5] The Debtor opposed the request, arguing that its obligation to pay any post-petition rent was excused by (1) the lease’s force majeure clause and (2) the Landlord’s failure to make necessary repairs to the leased premises.[6]

According to the Landlord,  the force majeure clause was not triggered by the Governor’s executive order for three reasons. First, the executive order did not shutdown the banking system or post offices, therefore the debtor was still able to write and send checks.[7] Second, the Debtor’s failure to pay was to the result of a lack of liquidity, which did not trigger the force majeure.[8] Third, the debtor could have paid rent utilizing funds from a Small Business Administration loan.[9]

According to the bankruptcy court, “in Illinois, contracts are enforced according to their terms” and “force majeure clauses in contracts supersede the common law doctrine of impossibility.”[10] Further, Illinois law provides “a force majeure clause will only excuse contractual performance if the triggering event cited by the nonperforming party was in fact the proximate cause of the nonperformance.”[11] The court determined that the Governor’s “order constituted both ‘governmental action’ and issuance  of an ‘order’ as contemplated by the language of the force majeure clause.”[12] Additionally, the court held that the order “hindered” the debtor’s ability to pay rent, since they were prohibited from offering on-premises consumption of food or beverages and that the order was the proximate cause of the Debtor’s inability to pay rent.[13] According to the court, the force majeure clause excused post-petition rent, but not for the period before the “stay at home” order.[14] Consequently, the lease payment became fully due on the first of the month and the executive order did not become effective until March 16, so the force majeure clause did not excuse payment for March.[15] The bankruptcy court ultimately concluded that the force majeure clause partially excused the Debtor’s obligation to pay rent for the months of April, May, and June 2020.[16]

The bankruptcy court noted that the order did not prohibit off-premises consumption.[17] Thus, the court reduced the Debtor’s rent obligation in proportion to its reduced ability to generate revenue.[18] Relying on the Debtor’s admission, the court found  that the dining area and bar encompassed seventy-five percent of the square footage of the restaurant and the remaining footage of twenty-five percent consisted of the kitchen.[19] Therefore, according to the court, the Debtor owed twenty-five percent of the rental payments, because the remaining footage was prohibited from use under the Governor’s order.[20] The court further held that if the Debtor fails to make the proportionate payment by June 16, 2020,  it would lift the automatic stay on the basis that the Landlord demonstrated that Debtor failed to protect the creditor’s interest in the leasehold.[21]

[1] See In re Hitz Rest. Grp., 616 B.R. 374, 377 (Bankr. N.D. Ill. 2020).

[2] Id. at 377.

[3] Id. at 376.

[4] Id. at 377.

[5] Id. at 376.

[6] Id. at 376–77 (“The lease's force majeure clause provides: Landlord and Tenant shall each be excused from performing its obligations or undertakings provided in this Lease, in the event, but only so long as the performance of any of its obligations are prevented or delayed, retarded or hindered by . . . laws, governmental action or inaction, orders of government . . . . Lack of money shall not be grounds for Force Majeure.”).

[7] Id. at 378 (rejecting argument as specious and unresponsive to Debtor’s argument). 

[8] Id. (observing Debtor’s argument that the executive order is the proximate cause of failure to pay rent). 

[9] Id. (determining creditor has not cited any language from the lease or any case law to support argument).

[10] Id. at 377.

[11] Id.

[12] Id.

[13] Id. at 377–78.

[14] Id. at 377.

[15] Id.

[16] Id.

[17] Id. at 379.

[18] Id.

[19] Id.

[20] Id.

[21] Id.