Tag: double rent

Landlord’s Double-Rent Holdover Claim Barred by Res Judicata – A Deep Cut (IL 2012)

A commercial lease dispute sets the backdrop for an appeals court’s nuanced discussion of statutory holdover damages and when res judicata and claim-splitting defeat a second lawsuit involving similar facts to and subject matter of an earlier case.

For many years, the tenant in Degrazia v. Levato operated “Jimbo’s” – a sports bar set in the shadow of U.S. Cellular Field (nka Guaranteed Rate Field) and perennial favorite watering hole for Chicago White Sox fans.

Lawsuit 1 – the 2006 Eviction Case

In 2006, plaintiff filed an eviction lawsuit when the lease expired and defendants refused to leave.  In addition to possession of the premises, the plaintiffs also sought to recover use and occupancy damages equal to double the monthly rent due under the lease through the eviction date.

The trial court granted plaintiff’s summary judgment motion in the 2006 eviction suit and struck defendant’s affirmative defense that plaintiff went back on an oral promise to renew the lease.  Defendant appealed and the trial court’s eviction order was affirmed.

Lawsuit 2 – the 2007 Damages Case

Plaintiffs filed a second lawsuit in 2007; this time for breach of lease.  In this second action, plaintiffs sought to recover statutory holdover damages under Section 9-202 of the Forcible Entry and Detainer Act (the “FED Act”).  The court granted defendant’s summary judgment motion on the basis that plaintiff’s second lawsuit was barred by res judicata and the policy against claim-splitting.  The plaintiffs appealed.

Rules and Reasoning

For res judicata to foreclose a second lawsuit, three elements must be present:  (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) an identity of
causes of action; and (3) an identity of the parties or their privies.

Illinois courts also hew to the rule against splitting claims or causes of action. Under the claim-splitting rule, where a cause of action is entire and indivisible, a plaintiff cannot divide it by bringing separate lawsuits.  A plaintiff cannot sue for part of a claim in one action and then sue for the rest of the claim in a second suit.  Like res judicata, the claim-splitting rule aims to foster finality and protect litigants from multiple lawsuits.

The First District held that the trial court’s order in the 2006 lawsuit granting plaintiffs’ motion for summary judgment was a final order only on the issue of possession but not on plaintiff’s attorneys’ fees since the court expressly granted plaintiffs leave to file a fee petition.  And since there was no final order entered on plaintiff’s attorneys’ fees in the 2006 case, plaintiffs could seek the same fees in the 2007 lawsuit.

The Court did, however, affirm summary judgment for the tenants on plaintiffs’ statutory holdover claim.  FED Act Section 9-202 provides that a tenant who willfully holds over after a lease expires is liable for double rent. 735 ILCS 5/9-202.

The Plaintiffs sought the same double rent in both the 2006 (eviction) and 2007 (damages) lawsuit and requested these damages in their summary judgment motion filed in the 2006 case.  The eviction judge in that 2006 case only allowed plaintiffs to recover statutory use and occupancy instead of statutory holdover rent.  The First District held that the use and occupancy order was final.  And since plaintiffs never appealed or challenged the use and occupancy order in the 2006 case, plaintiff’s 2007 Lawsuit was defeated by res judicata.

The Court also rejected plaintiffs’ argument that the forcible court (in the 2006 Lawsuit) was limited to ordering possession and unable to award statutory holdover damages.  It found that FED Act Section 9-106 expressly allows a landlord to join a rent claim and FED Sections 9-201 and 9-202 respectively allow a plaintiff to recover use and occupancy and holdover damages.  As a result, the First District found there was nothing that prevented the 2006 eviction case judge from awarding holdover rent if plaintiffs were able to show that defendants willfully held over after the lease expired.

Afterwords:

There is scant case law on Illinois’ holdover statute.  While an action for possession under the FED Act is, in theory, a limited, summary proceeding directed solely to the question of possession, the FED Act sections that allow a plaintiff to join a rent claim, to recover use and occupancy payments in addition to double holdover rent give shrewd lessee lawyer’s enough of an opening to argue issue or claim preclusion.

This case demonstrates that the best pleadings practice is for the landlord to join its double-rent claims in the eviction case and put the burden on the tenant to argue the holdover damages claim is beyond the scope of a FED action.  Otherwise, there is a real risk that the failure to join a holdover claim in the possession action will prevent holdover damages in a later lawsuit.

Commercial Landlord Not Entitled to Double Rent Under Holdover Statute Where Tenant Had Legitimate Belief It Had Right to Possess Space – IL 1st Dist.

I’ve written on here before about how a tenant holding over after a lease expires can lead to a serious case of option paralysis for the landlord.  Questions abound in rapid-fire fashion: should the landlord accept the holdover and continue the lease on the same terms as before? Should the landlord seek double rent under the forcible statute?  Should the landlord refuse to cash any rent checks from the tenant after the lease expires?  What if the landlord desperately needs that post-expiration rent payment?  These are all issues that need to be addressed.  And fast. 

Spatz v. 2263 North Lincoln Corporation, 2013 IL App (1st) 122076, a somewhat dated but relevant case, examines the requirements for a holdover tenancy and the features of an enforceable option to purchase in the context of a commercial lease dispute.

That case’s plaintiff, a successor property owner (to the original landlord), sued the commercial tenant for eviction and past rent damages. The tenant defended the suit, and argued that it exercised an option to purchase the premises from the plaintiff’s predecessor before the lawsuit was filed and therefore was immune from eviction.

The trial court sided with the plaintiff awarding it possession and rental damages but only awarding about half of its claimed attorneys’ fees. The court also denied plaintiff’s request for double rent under Illinois’ holdover statute (735 ILCS 5/9-202).  Both sides appealed.

Affirming the possession order, the appeals court rejected the defendant’s argument that it exercised a purchase option on the property and was therefore a property vendee rather than a lessee.

In Illinois, where a lease contains a purchase option, and the option is exercised and accepted according to its terms, there is no longer a lease.  What results instead is a present contract for the sale of the property.  The parties relationship then morphs from a landlord-tenant one to a vendor-vendee one.  The lessee (now the vendee) then has no further lease obligations.

However, the lessee must exercise the option to purchase to the property in exact conformance with the option. If it fails to do so, the option is deemed unexercised and the landlord can pursue rights under the lease. (¶¶ 27-28).

Here, the court found that the lessee’s purported acceptance of the purchase option was too conditional to be considered a proper exercise of the option.

The court next held that the lessor failed to extend the lease or create a holdover tenancy by accepting partial rent payments from the tenant after the lessor served its 30-day termination notice.

Under Illinois law landlord-tenant law, it is the landlord’s intention, not the tenant’s, that determines whether a holdover tenancy is created. While a landlord’s acceptance of rent following the expiration of a lease can be viewed as an intent to treat a tenant as a holdover, a court objectively looks to landlord’s other conduct – such as efforts to regain the premises – to determine whether the landlord intended to treat a tenant as a holdover. (¶ 37)

The lease specifically allowed the landlord to accept post-default rent payments without extending the lease.  In addition, the landlord sued to evict the defendant. Taken together, this served as clear evidence of a landlord’s intent not to treat the tenant as a holdover.

The First District also affirmed the trial court’s denial of the plaintiff’s claim for double rent under Section 9-202 of the Forcible Statute.

This statute allows a landlord to recover double rent where a tenant willfully holds over. The statute is penal in nature and only applies where a tenant stays in possession in bad faith – basically where it knows it has no right to stay after the lease ends. (¶¶ 44-45).

Where a tenant stays on site “for colorably justifiable reasons” (i.e., under a reasonable claim of right), the landlord cannot recover double rent under the willfully holding over statute. (¶ 44)

Here, the tenant offered evidence at trial showing that it had a legitimate dispute as to whether it had a right to stay in possession after lease expires. Consequently, the appeals court affirmed the trial court’s finding against the landlord on the double rent issue.

Afterwords:

1/ An option to purchase must be exercised in strict conformity with the purchase option;

2/ For a lessor to recover double rent under the holdover statute, the lessor must prove the lessee’s willfull conduct: that the lessee refused to vacate the premises without a good faith basis for doing so;

3/ 30-days’ written notice is required to terminate a month-to-month tenancy.