COVID-19 UPDATE from Bellas & Wachowski

Rent Relief for Chicago Restaurant Ordered by Judge

For the first time to our knowledge a judge has ordered rent relief for a Chicago restaurant.   The bankruptcy judge ruled that the “Act of God” clause in the lease gives the restaurant rent relief when it was forced to closed during the the COVID-19 mandatory closings.

George Bellas Chicago Business Lawyer George Bellas answers questions for business owners.

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The force majeure clause in the lease of Italian restaurant Giglio’s State Street Tavern eliminated the restaurant’s obligation to pay full rent during the time when the City and State implemented the “stay-at-home order” to deal with the pandemic.   (For more info on the force majeure contact clause, see my other Blog on force majeure.)

To my knowledge this is the first time a court has used this contractual clause in a landlord’s attempt to collect missed rent payments, and it won’t be the last.

After the restaurant filed for bankruptcy, the landlord asked the bankruptcy judge  to order the restaurant to pay the back rent from March to June or else order the restaurant to vacate the premises.  The bankruptcy judge ordered the restaurant/tenant to pay the March rent in full, but since the Illinois Governor had ordered restaurants closed, that was good reason for the force majeure clause to kick in and abate rent for the months of April to June.   The Governor’s Order hindered the restaurant’s ability to generate revenue and pay rent.

But since the restaurant could still offer limited takeout and curbside service, rent should be reduced “in proportion to its reduced ability to generate revenue due to the executive order.”    The court ruled that the force majeure provision excused the restaurant from paying 75 percent of its post-petition payment obligation.  The restaurant was ordered to pay 25 percent rent and other obligations for the months following the effective date of the Executive Order until restrictions are lifted in whole or in part.

This is the first case I know of dealing with the payment of rent during the pandemic, and there are sure to be more!   The case shows the impact that the closures have had on restaurants – and other businesses.   However, every lease does not contain a force majeure clause or a “governmental action” clause as an event that excuses the payment of rent.

This is the not the last we will see on this subject.  But, we urge every business owner who is facing eviction for non-payment of rent to review their leases.