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11 U.S.C.S. § 365(d)(3) was added to the Bankruptcy Code in order to relieve landlords from the burden of proving that the rent payments they sought to collect from debtors prior to rejection were actual and necessary costs of preserving the bankruptcy estate.
Kass Management Services, Inc. ("Creditor") has presented two motions to the Court. The first sought to enforce the obligation of Hitz Restaurant Group ("Debtor") to pay post-petition rent under 11 U.S.C. § 365(d)(3), and the second sought to modify the automatic stay under § 362(d)(1). Specifically, Creditor requested that, if the Court does not grant its motion to modify the stay, the Court should order Debtor to immediately pay post-petition rent in the amount of $31,473.86 and to timely perform all future rent obligations. Additionally, Creditor sought an order requiring Debtor to vacate the premises immediately unless the post-petition rent is paid, and future obligations are kept current. Debtor argued that its obligation to pay any post-petition rent is excused by the lease's force majeure clause and by Creditor's failure to make necessary repairs to the leased premises. Debtor argued that this clause was triggered on March 16, 2020, the effective date of an executive order issued by Illinois Governor J. B. Pritzker addressing the Covid-19 pandemic in Illinois which prohibited on-premises consumption.
Was the Debtor’s obligation to pay any post-petition rent excused by the lease's force majeure clause?
The court held that the force majeure clause in Debtor's lease was unambiguously triggered by § 1 of the Governor's executive order closing in person dining in restaurants due to the Covid-19 pandemic. However, because the executive order still permitted restaurants to provide take-out, curbside pick-up, and delivery, debtor was not entitled to a 100 percent rent reduction caused by the force majeure clause. Based on Debtor's concession that 25 percent of the restaurant's square footage, consisting of the restaurant's kitchen, could have been used for carry-out, curbside pick-up, and delivery purposes, the Debtor owed at least 25 percent of the rent amount to the creditor under 11 U.S.C.S. § 365(d)(3), even after application of the force majeure clause.