A restaurant chain wrote this text in a form letter, sending it to dozens of landlords across the land last week:
“As you know, the COVID-19 crisis is having a devastating impact on the restaurant industry on an unprecedented level. The National Restaurant Association projects an economic impact of at least $225 billion with five to seven million jobs lost. Bagel Brands is no exception to this impact, and it is therefore now incumbent upon us to balance this impact on all of our stakeholders as best as we possibly can. At Bagel Brands we are focused on giving the highest priority to protecting the health and well-being of our customers and team members as we also ensure the long-term viability of our company.
I am writing to update you on steps we are taking with respect to our landlords. We understand that we are in this together and while these are necessary steps, the consequences to both top line and bottom line are significant to our businesses. Our objective is to emerge on the other side of this COVID-19 business crisis in a position to regain our footing, re-staff our operations, and once again grow our brand.
To mitigate some of the impact of this COVID-19 crisis, Bagel Brands will implement revised rental payments beginning April 1st.
Revised rental payments will provide relief to protect Bagel Brands’ continued operations while also supporting some payments to you. The amount we will send you reflects our estimates of what we can pay given the current and anticipated business environment.”
The letter then went on to say that the rent would be reset every month, depending on how BB saw things unfolding, and that BB wasn’t waiving any of its lease defenses, including (naturally) force majeure.
Not only does this violate Widener’s precepts of (a) being kind to one another in these difficult times, and (b) being communicative, this posture only makes sense in certain contexts – not in every set of leasing circumstances, in other words. And the knuckle-headed reliance on the French expression for “uncontrollable conditions” continues to baffle me. So, a bit of history from, golly, back to the preceding decade.
A fellow named Trump had development companies and joint ventures called loosely the Trump Organization (“TO”). TO wanted to build its biggest mixed-use hotel project to date in the business center of Chicago. To do so, TO had taken out a $640 million loan — including $40 million Donald J. Trump personally guaranteed — to finance the Trump Tower on the site of the old Chicago Sun-Times building. When $40 million was due in 2008, TO didn’t pay the installment, after the bank advised TO it would not amend the note to provide an extension for the installment due date. Deutsche then sued on Nov. 28, 2008.
TO, in a counter lawsuit filed in New York City, asserted “force majeure.” TO claimed that the 2008 economic crisis was a “once-in-a-century credit tsunami,” an act of God equivalent to an earthquake. Since the Great Recession couldn’t have been anticipated, and it wasn’t the TO’s fault, TO and the guarantor weren’t obliged to pay Deutsche Bank anything.
The TO complaint alleged:
“This action by Deutsche Bank [refusing to grant an extension to pay the impending installment] is a breach of Deutsche Bank’s obligations to Borrower and the other lenders. Deutsche Bank has created a disjointed and dysfunctional group of lenders and Deutsche Bank’s actions will cause tremendous damage to Plaintiffs, the Trump brand, the Project, and those lenders who are trying to act reasonably and in good faith.”
Claims and counterclaims in the litigation settled in 2010, with Deutsche Bank’s lender group giving a five-year extension on TO’s previously defaulted loan.
Does that mean that the “force majeure” is a viable defense? Settlements occur for myriad reasons, and just some of them are based on merits of legal claims. If you believe that “force majeure” automatically excuses your performance of any of your legal obligations in these days of isolation and stay at home orders, you’re free to proceed to defy your landlord and other creditors. And you’re foolish. At a minimum, you’re not Donald J. Trump.
To recap: Covid-19 isn’t an act of God. It was caused entirely by homo sapiens. If your store can still be operated, you’ve not got a leg to stand on, IF your lease says the tenant must either be denied all access to the leased premises or otherwise be put out of business altogether. And lost profits is not synonymous with “loss of all revenues.” If your store has a drive through feature or pickup window, you don’t have a force majeure defense, in all likelihood.
Get a lawyer to read your lease’s force majeure clause, if it contains one. You need to understand what the language says before acting. Not what you think it means, or what you hope it means. If you guess wrong, you could have a judgment taken against you for the rent due for the entire remaining lease term. It’s too early in this crisis to be filing for bankruptcy, folks.