Commercial Tenant Can’t Share in Shopping Mall Condemnation Award

strip-mallIn Village of Palatine v. Palatine Associates, LLC, 2012 IL App (1st)  102707, an eminent domain (condemnation) suit, the defendant owned a shopping center and was a lessor on several commercial leases – all of which contained provisions that said in the event of condemnation proceedings, the tenant would share in any award.  The plaintiff Village filed a condemnation suit about two years into a ten-year lease between the defendant landlord and a commercial tenant.  The condemnation suit eventually settled with the landlord getting nearly $5M in proceeds to the exclusion of the tenant.  Tenant appealed.

Held: Affirmed:

Basis: The First District agreed with the trial court that the landlord terminated the tenant’s lease before the condemnation award.  The Court rejected tenant’s argument that the landlord’s 5-day notice was deficient and that the landlord waived the notice by accepting partial payment.  In Illinois, acceptance of rent in a commercial lease setting is not a waiver if the notice explicitly gives the landlord the right to accept partial payment. Palatine Associates, ¶¶ 73-75. 

The Court also discarded the tenant’s fraud in the inducement defense.  The Court enforced the lease’s “non-reliance” clause, through which the tenant certified that it wasn’t induced to enter the Lease by any landlord representations.  Id., ¶ 79.  The non-reliance clause precluded the, tenant from establishing justifiable reliance – a required fraud in the inducement element.  The court also rejected tenant’s claim that the non-reliance clause was an unenforceable exculpatory clause that immunized the landlord for wilful and wanton conduct.  The reason: the lease text said nothing about insulating the landlord from intentional torts.  (¶¶ 82-83).

Conclusion

Palatine Associates provides a good summary of Illinois contract formation, interpretation and enforcement rules in the commercial lease context.  Though its  serpentine procedural history is hard to follow, the general rules gleaned from the case are simple.  For lessors, the case reaffirms the importance of both 5-day notices and that a lease specifically state that only full payment will waive a lease default.  The case also shows that in commercial lease context, integration and non-reliance clauses are enforceable against tenant defenses based on pre-lease representations by a landlord.

For tenants, the case cautions to be leery of lease terms that allow landlords to accept partial payments without waiving the default as well as lease integration and non-reliance clauses.  An integration clause will bar any evidence of a landlord’s oral representations that conflict with the written lease.  A non-reliance provision will preclude a fraud in the inducement claim.