Does a lack of revenue (because of a closure order) excuse a business from paying rent?
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A court in Illinois excused a restaurant from paying 75% of its rent because the governor had ordered the restaurant to shut down most of its operations. The decision might give other businesses a roadmap for similar relief.
The restaurant’s lease had a force majeure clause. It said that either party would be “excused from performing its obligations” so long as that was “prevented or delayed … by …. orders of government.” The tenant argued that the mandatory shutdown of most of its operations meant it lost most of its revenue and therefore its obligation to pay rent should be excused. The court mostly agreed, excusing 75% of the rent, but saying the tenant should still pay 25% because it could still do take-out and delivery business.
Most force majeure clauses say they don’t apply to any obligation to pay money; they just apply to obligations to do certain things. For example, if a lease required the tenant to keep its dining room open at least 12 hours a day, a typical force majeure clause would excuse that if a government required the tenant to close. But, by its express terms, a typical force majeure clause says that force majeure cannot excuse any obligation to pay money, e.g., rent.
This particular force majeure clause was a little different. It just said: “Lack of money shall not be grounds for Force Majeure.” So this language didn’t categorically carve out all monetary obligations from the force majeure clause. It just said the tenant couldn’t claim force majeure as a result of not having enough money. And the tenant argued it wasn’t making any such claim. The tenant might well have had thousands of dollars in the bank, but the tenant was claiming something other than lack of money. Instead, the tenant argued that the closure meant the tenant couldn’t operate most of its business, which created an inability to pay rent.
The landlord argued that nothing in the closure order prevented the tenant from writing and mailing a check. The court labelled that argument “specious” and dismissed it. The landlord also could have pointed out that if a restaurant lost its revenue for any reason, that equates to a “lack of money” and shouldn’t excuse anything even under the language in this particular lease. But the court didn’t see it that way.
Most leases are written by landlords. When this landlord wrote this lease, the landlord probably intended (if anyone thought about it) that the reference to “lack of money” meant that this force majeure clause, like most of them, didn’t apply to any obligation to pay money. But that’s not exactly what the lease said. That gave the tenant an opening to achieve a result that thousands of other tenants from coast to coast would like to achieve.
Before tenants applaud this decision and line up for similar treatment, they need to realize that this case mostly teaches how important it is to read the words of the lease. The force majeure clause in this lease was just a little quirky, though hardly out of the usual range. Many other force majeure clauses, but probably a minority of them, have similar language. So if a tenant’s lease has a force majeure clause like this one, then this case gives the tenant an argument for similar treatment. Any particular lease may also have other helpful language, so one needs to start by reading the lease.
Any tenant excitement over this decision must also be tempered by the fact that it was issued by a bankruptcy court, not a state landlord-tenant court. Bankruptcy judges sometimes try hard to protect debtors, dealing with issues in a goal-oriented way and trying to achieve rough justice quickly, rather than fixating on the exact words of a document and what the parties probably meant. Bankruptcy court decisions do not necessarily carry tremendous weight outside the bankruptcy system.
To read the decision, run an online search for: hitz 05012.