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July 22, 2020

COVID-19 UPDATE: Litigation Developments: In re Hitz Restaurant Group

We are writing to provide an update on an Illinois bankruptcy court ruling that applied a force majeure provision to allow a tenant to reduce its rent obligations in response to the COVID-related closure of its business. To our knowledge, this is the first Illinois court to issue such a ruling and the decision likely will have implications both within the landlord-tenant context and beyond.

The case, In re Hitz Restaurant Group, involved a tenant, the Hitz Restaurant Group, seeking to have its rent eliminated or reduced based on losses suffered during the COVID-19 shut down of its business. The lease’s force majeure clause stated:

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, retarded or hindered by … laws, governmental action or inaction, orders of government … Lack of money shall not be grounds for Force Majeure.

The Court found that the provision “unambiguously applied,” at least in part, to the restaurant’s rental payments because the shutdown order precluded on-premises dining at restaurants. The order constituted “governmental action” and issuance of an “order.” Interestingly, the Court applied the force majeure provision to reduce, but not eliminate, the restaurant’s rent during the shutdown, reasoning that the executive order allowed restaurants to continue carry-out, curbside pick-up and delivery services.

This ruling, while not binding on other Illinois state or federal courts, will likely be relied on by other businesses seeking relief for COVID-related shut down losses. It should be noted, however, that the potential for relief likely will depend on the language of each individual force majeure clause and facts specific to each business (for example, the extent to which operations were shut down by order).

As always, feel free to contact us if you have any questions regarding this case or anything else. We would be happy to review your agreements and evaluate potential recourse or exposure relative to your force majeure provisions in light of the new ruling.

Gery Chico, Robert Markin, Andrew Spangler, Jr. and William Klinger

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