How Force Majeure Was Successfully Used by a Tenant in Court

A recent ruling in the CEC Entertainment Chapter 11 case may pave the way for debtors to use chapter 11 to reduce their rent obligations under commercial leases on the basis of pandemic-related diminished use, if the lease involved contains robust force-majeure or similar contract provisions. See In re CEC Entertainment, Inc., ch. 11 case No. 20-33163 (MI) (Bankr. S.D. Tex.).  This is a significant change from prior chapter 11 practice where debtor tenants must either pay the full contract rent under their commercial leases while in bankruptcy, or reject such leases and vacate the premises.  Although the rent abatement matter remains an open issue, and it appears most recent commercial-lease disputes are being resolved out of court, the CEC Entertainment case shows that bankruptcy courts may be willing to grant debtors extraordinary relief in light of the ongoing pandemic, but only if there is some contractual basis to do so.

 Examples of force-majeure events often include acts of God, war, terrorist events, fire, labor strikes, or other events that severely affect the parties’ ability to perform under the contract or lease.  For a force-majeure clause to be relevant, a party’s performance under the contract must be prevented or substantially impeded on account of the force-majeure event, despite the party taking all reasonable steps to avoid the consequences of such event.  As we will see below, the precise language of any force-majeure clause will be important in the resolution of any dispute where the clause is invoked.