Force majeure provisions have long existed as standard boilerplate language in commercial leases, often overlooked until extraordinary circumstances render contractual performance impossible. A pivotal bankruptcy court decision out of the Northern District of Illinois brought renewed attention to these clauses and established important precedent for how courts evaluate government-mandated shutdowns as qualifying force majeure events. For private lenders, real estate investors, and commercial landlords, understanding this ruling remains essential when structuring lease agreements and evaluating tenant default risk.
Understanding Force Majeure in Commercial Real Estate
Force majeure, a French term meaning “superior force,” refers to contractual provisions that excuse one or both parties from performing their obligations when extraordinary events beyond their control make performance impracticable or impossible. In commercial real estate, these clauses typically address natural disasters, acts of war, and government orders that prevent normal business operations.
What makes force majeure clauses particularly significant in real estate transactions is their variability. Unlike statutory protections that apply uniformly, force majeure provisions are creatures of contract. Their scope, limitations, and triggering events depend entirely on the specific language negotiated between landlord and tenant. This means that two leases in the same building could produce entirely different outcomes when the same disruptive event occurs.
For decades, force majeure clauses in commercial leases attracted minimal litigation. Parties rarely invoked them, and when they did, courts generally applied narrow interpretations. The economic disruptions caused by widespread government shutdown orders changed that calculus dramatically, generating a wave of cases testing whether these provisions could relieve tenants of their rent obligations.
The Hitz Restaurant Group Decision
The case that drew national attention involved Hitz Restaurant Group, a Chicago-based restaurant operation that had filed for Chapter 11 bankruptcy reorganization in late February 2020, before government shutdown orders took effect. When Illinois subsequently mandated the closure of dine-in restaurant service, Hitz argued that the government order excused its obligation to pay full rent for the months of April through June.
The lease between Hitz and its landlord contained a force majeure clause providing that both parties “shall each be excused from performing its obligations or undertakings provided in the 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.”
The Landlord’s Position
The property owner advanced two principal arguments against applying force majeure relief. First, the landlord contended that Hitz could still generate revenue through takeout and delivery operations, meaning the government order did not entirely prevent the tenant from conducting business. Second, the landlord argued that federal relief programs, specifically the Paycheck Protection Program, provided an alternative funding source that the tenant should have utilized to meet its rental obligations.
The Court’s Analysis
Judge Donald Cassling of the United States Bankruptcy Court for the Northern District of Illinois delivered a nuanced ruling that rejected an all-or-nothing approach. Rather than finding that the force majeure clause either fully excused rent payments or had no application whatsoever, Judge Cassling adopted a proportional framework.
The court determined that the Illinois government’s shutdown orders constituted qualifying force majeure events under the lease’s contractual language. However, recognizing that the tenant retained limited capacity to generate revenue through delivery and pickup services, the judge calculated that approximately 25 percent of the leased premises could still be productively utilized under the existing restrictions.
Accordingly, the court held that Hitz remained obligated to pay roughly 25 percent of its monthly rent, amounting to approximately $2,600, while force majeure excused the remaining 75 percent. This proportional approach reflected the partial nature of the business disruption rather than treating the situation as binary.
Equally significant was the court’s rejection of the landlord’s PPP argument. Judge Cassling held that the force majeure provision, as written, did not impose any obligation on the tenant to obtain third-party financing or government loans to fulfill its contractual duties. The clause addressed performance prevention by government action, not the tenant’s ability to secure alternative funding sources.
Broader Implications for Commercial Real Estate
Proportional Force Majeure Analysis
Perhaps the most consequential aspect of the Hitz decision was the court’s willingness to apply force majeure relief on a sliding scale. Traditional force majeure analysis often operated as a binary determination: either the triggering event completely prevented performance, or it did not. Judge Cassling’s proportional framework opened the door to more flexible judicial analysis that accounts for partial disruptions to business operations.
This proportional approach has meaningful implications for lease drafting. Landlords who want to limit partial force majeure claims may need to include explicit language requiring total prevention of performance rather than mere hindrance. Conversely, tenants benefit from broader force majeure language that encompasses events that “delay, retard, or hinder” performance, not just those that make it entirely impossible.
Drafting Considerations for Lenders and Investors
Private lenders underwriting commercial real estate loans should carefully evaluate force majeure provisions in underlying tenant leases, as these clauses directly affect the income stream securing the loan. Key drafting considerations include:
- Specificity of triggering events: Clauses that enumerate specific categories of qualifying events, such as government orders, provide clearer grounds for invocation than vague references to circumstances “beyond the parties’ control.”
- Obligation to mitigate: The Hitz court found no mitigation obligation where the lease language did not require one. Landlords seeking to preserve rental income should consider requiring tenants to pursue reasonable mitigation efforts, including applying for available government assistance programs.
- Duration limitations: Force majeure relief in the Hitz case lasted only as long as the government restrictions remained in effect. Well-drafted clauses should specify maximum relief periods and require periodic reassessment of whether the triggering event continues.
- Notice requirements: Establishing clear notice obligations ensures that the party seeking force majeure relief communicates promptly and provides the other party an opportunity to respond or negotiate alternative arrangements.
Impact on Loan Underwriting
For private lenders evaluating commercial real estate collateral, the Hitz decision underscores the importance of stress-testing income projections against potential force majeure scenarios. A property’s net operating income may be significantly impaired if anchor tenants successfully invoke force majeure relief, and lenders should factor this risk into their debt service coverage ratio calculations.
Loan documents should address force majeure risk through provisions requiring borrowers to maintain adequate reserves, carry business interruption insurance, and promptly notify lenders of any tenant force majeure claims. Additionally, lenders may consider requiring landlord-borrowers to include specific protective language in their tenant leases that limits the scope and duration of force majeure relief.
Lessons for the Current Regulatory Environment
While the specific government shutdown orders that triggered the Hitz litigation have largely expired, the legal principles established in the case remain highly relevant in 2025. State and local governments continue to exercise regulatory authority that can disrupt commercial operations through environmental regulations, zoning changes, building code enforcement actions, and public health measures.
The Hitz framework provides a roadmap for analyzing any situation where government action partially impairs a tenant’s ability to operate. Whether the disruption stems from mandatory evacuation orders during natural disasters, construction moratoriums, or new regulatory compliance requirements that temporarily shutter operations, the proportional analysis established in this case offers a practical tool for resolving disputes without resorting to the harsh binary outcomes that previously characterized force majeure litigation.
Commercial real estate professionals, private lenders, and their legal counsel should revisit existing lease templates and loan documents to ensure that force majeure provisions reflect the lessons learned from this watershed decision. Proactive drafting today can prevent costly litigation tomorrow.
Protect Your Real Estate Investments with Experienced Legal Counsel
Geraci LLP has been at the forefront of private lending and commercial real estate law since 2007. Our attorneys provide comprehensive counsel on lease structuring, loan documentation, and risk mitigation strategies tailored to the unique needs of private lenders and real estate investors. Whether you need to review force majeure provisions in existing agreements or draft new protections for future transactions, our team is ready to help.
Contact Geraci LLP today at (949) 403-3488 or visit our offices at 90 Discovery, Irvine, CA 92618 to schedule a consultation.
